Arizona Non-QM Condo Loans: How to Secure Financing for Non-Warrantable Condos

Arizona Non-QM Condo Loans: How to Secure Financing for Non-Warrantable Condos

Understanding Arizona’s Non-Warrantable Condo Landscape

For mortgage brokers and loan officers working in Arizona, navigating the financing landscape of non-warrantable condos presents both a challenge and an opportunity. A condo becomes “non-warrantable” when it fails to meet certain eligibility criteria set by government-sponsored entities like Fannie Mae or Freddie Mac. These criteria include requirements related to the project’s financial health, owner-occupancy ratios, pending litigation, or even short-term rental activity.

In Arizona, especially in high-demand urban markets like Phoenix, Scottsdale, Tempe, and Tucson, many condos fall into the non-warrantable category due to the prevalence of short-term rentals, new or incomplete projects, or HOAs facing litigation or reserve deficiencies. For mortgage professionals, this often means dealing with rejections from conventional lenders, frustrated borrowers, and deals that die at the last mile.

Why Conventional Lenders Say No—and Where Non QM Loans Step In

Traditional financing through agency lenders hinges on strict guidelines that often do not reflect the modern, dynamic reality of the Arizona condo market. Fannie Mae and Freddie Mac require at least 50% of the units to be owner-occupied, demand that no more than 15% of HOA dues are delinquent, and often disqualify projects with active litigation or high commercial space usage.

These requirements leave many otherwise viable properties and qualified borrowers ineligible for conventional financing. This is where NQM Funding steps in with Non QM Loans — an alternative that doesn’t rely on agency approval, giving brokers the flexibility to close loans that would otherwise be impossible.

Arizona Non-QM Condo Loans: Product Overview

NQM Funding offers flexible Non-QM solutions under the Flex Select program for non-warrantable condos. These loans are particularly effective for borrowers who don’t fit inside the agency lending box. Here are some key highlights:

• LTVs up to 85%: For primary residences, borrowers can qualify with up to 85% loan-to-value. Second homes and investment properties may qualify up to 80%, depending on documentation and credit profile.

• Credit Score Minimums: Minimum FICO scores typically begin at 660. However, borrowers with higher LTVs or more complex financials may need a score of 700+ for approval. Strong compensating factors such as large reserves or verified rent history can help offset lower credit.

• Eligible Occupancy Types: Financing is available for a wide range of use types, including:

  • Owner-occupied condos (primary residence)

  • Second homes and vacation condos

  • Investment properties including short-term rental (STR) units

• Flexible Documentation Options: NQM Funding supports multiple documentation types to accommodate the diversity of today’s borrower:

  • Full Doc (W-2 and tax return-based qualification)

  • 2- to 24-month Bank Statements for self-employed borrowers

  • P&L Only for qualified business owners

  • 1099 Only for independent contractors

  • Asset Utilization (for high-net-worth borrowers qualifying off assets)

• Loan Amounts: Loan sizes can range from $125,000 up to $3 million, giving you the flexibility to serve both average buyers and luxury condo clients.

• No Mortgage Insurance Required: Even at higher LTVs, NQM Funding does not require PMI, reducing the monthly cost for your clients and enhancing their purchasing power.

• Interest-Only Options: For borrowers looking to manage cash flow or reduce their monthly payments initially, interest-only options are available.

• Prepayment Flexibility: While prepayment penalties may apply on some investment loans, NQM Funding offers buydown options to reduce or eliminate them when needed.

This suite of features makes Non-QM condo loans highly versatile for a wide range of borrower profiles—from self-employed entrepreneurs buying a pied-à-terre in Scottsdale, to a retiree using liquid assets to buy a luxury unit in downtown Phoenix.

Borrower Eligibility Requirements for Non-Warrantable Condo Loans

Borrower eligibility under NQM Funding’s Non-QM condo loan programs is designed with inclusivity and flexibility in mind. Unlike conventional lenders, who tend to have rigid guidelines and income verification processes, NQMF understands that every borrower’s financial profile is unique. Here’s what brokers need to know:

• U.S. Citizens and Permanent Residents: Eligible with standard documentation. May qualify under full doc or alt-doc programs depending on employment and income structure.

• Self-Employed Borrowers: Those with at least two years of self-employment history can qualify using bank statements, P&L statements, or 1099s. NQM Funding evaluates the actual cash flow of the business, offering a realistic picture of income.

• Wage Earners with Variable Income: Borrowers earning through commission, bonuses, tips, or multiple part-time jobs can benefit from income averaging options. A minimum of one to two years of documented income is typically required.

• Foreign Nationals: NQMF offers unique programs for foreign national buyers who do not live or work in the U.S. Full doc or asset-based qualification is acceptable, and borrowers must demonstrate the ability to repay using foreign or U.S. financials.

• ITIN Borrowers: NQMF’s Select ITIN program allows borrowers without a Social Security Number to finance non-warrantable condos, provided they have verifiable income, a 0x30x24 housing history, and meet minimum credit requirements.

• First-Time Homebuyers: While more documentation and stronger credit may be required (especially under the Flex Supreme variant), first-time homebuyers are eligible if they can demonstrate housing stability and ability to repay.

• Real Estate Investors: Investors purchasing condos for long- or short-term rental purposes can qualify through the Investor DSCR program. This uses the property’s income to qualify, rather than the borrower’s personal income.

• Asset-Rich, Income-Light Borrowers: Borrowers with significant liquid assets may qualify under asset depletion methods. This approach divides eligible assets over 60 to 84 months to determine qualifying income.

These eligibility options make it possible to serve borrowers who have been turned away by banks and agency lenders, helping brokers provide real solutions for complex borrower profiles.

Navigating Condo Eligibility with NQM Funding

Unlike agency lenders that automatically reject condos flagged as non-warrantable, NQM Funding takes a nuanced view. Underwriters evaluate:

• HOA Reserve Levels: While agencies require 10% reserves, NQM may allow flexibility based on compensating factors.

• Pending Litigation: Loans are considered even if the project has litigation, especially if it is non-structural.

• Owner Occupancy Ratios: While agencies require 50% owner occupancy, NQM evaluates risk on a case-by-case basis.

• Short-Term Rentals: Condos used for Airbnb or VRBO are still eligible under certain programs.

For brokers, this means you can bring projects to the table that agency lenders won’t touch. Tip: Always submit HOA documents early for review to ensure eligibility.

Strategies for Mortgage Brokers: How to Qualify Your Borrowers

Understanding how to structure a Non-QM condo loan starts with qualifying your borrower correctly:

• Document Housing History: Borrowers should have a 0x30x12 mortgage or rental history. For ITIN or first-time homebuyers, a 0x30x24 history may be required.

• Leverage Assets: If income is inconsistent, borrowers can qualify based on asset utilization, calculated over 60 or 84 months.

• Use the DSCR Program for Investors: If the property is an investment unit, especially a short-term rental, consider the Investor DSCR program. This evaluates property cash flow, not borrower income.

• Submit Full HOA Docs Early: Speed up underwriting by having the condo questionnaire, budget, insurance, and litigation disclosure upfront.

Flexible Income Verification Options for Condos in Arizona

Many Arizona borrowers, especially in the gig economy or self-employed sectors, struggle to document income through traditional means. NQM Funding offers multiple alt-doc paths:

• Bank Statement Programs: Use personal or business statements (12 or 24 months) to calculate income.

• P&L Only: Ideal for self-employed borrowers who want to simplify paperwork.

• 1099 Only: For independent contractors.

• Asset Utilization: For high-net-worth borrowers, income is derived from liquid assets.

• ITIN Borrowers: Eligible under the Select ITIN program with proper documentation and housing history.

Local Market Insight: Arizona Condo Dynamics

Arizona’s urban centers are experiencing rapid transformation, which has made the condo market both exciting and complex:

• Phoenix: With surging demand and limited single-family inventory, more buyers are looking to condos. Many newer developments have higher investor occupancy or shared commercial spaces, disqualifying them from agency financing.

• Scottsdale: A hotspot for short-term rentals, Scottsdale sees a large number of non-warrantable units due to Airbnb activity. This makes Non-QM loans crucial for closing deals.

• Tempe: With Arizona State University attracting faculty, students, and investors, the condo market here often has high rental percentages and low reserves — another flag for conventional lenders.

• Tucson: Older condo communities may struggle with litigation or deferred maintenance. Despite this, strong demand exists among retirees and snowbirds.

Additionally, Arizona is a popular destination for foreign nationals and seasonal residents (“snowbirds”) from colder states. Many of these buyers may not meet standard U.S. documentation standards and can benefit from NQM Funding’s ITIN or Foreign National loan programs.

Why Mortgage Brokers Partner with a Non QM Lender Like NQMF

Working with NQM Funding opens doors for brokers who are often shut out by traditional lenders. Here’s why:

• No MI at High LTVs: Your clients avoid extra costs.

• Condos Accepted Case-by-Case: Even if flagged as non-warrantable.

• Responsive Scenario Desk: Underwriters help structure tough deals.

• Fast Turn Times: Critical in competitive real estate markets.

• Alt-Doc Friendly: Open to 1099s, bank statements, P&Ls.

• Foreign Nationals & ITIN Friendly: Expand your borrower base.

• Flexible Underwriting: Exceptions considered for strong borrowers.

If you have a scenario in mind, get started with a Quick Quote today.

Final Tips for Closing More Non-Warrantable Condo Loans

Brokers who succeed in this niche consistently do three things:

• Get Condo Docs Early: Don’t wait for underwriting. Pre-screen the project.

• Understand the Borrower: Use the right income type and occupancy. DSCR for investors, Alt-doc for self-employed, full-doc when available.

• Work With NQM Experts: NQMF underwriters understand nuance. When in doubt, reach out.

Finally, always frame “non-warrantable” as a financing challenge that can be solved — not a flaw in the property. With the right approach and the right Non QM Lender, you can close deals other brokers can’t even touch. Visit nqmf.com to learn more about your Non QM Loan options and become the go-to resource for Arizona condo financing.