Condominium Ownership Occupancy Lending Issues
Condominiums offer their residents a host of attractive benefits, lenders are generally
a bit more wary of extending financing on them than they are for single family
homes. This is due to perceived higher risk and reduced marketability that can
result from a number of factors. When buying into a condominium, you are
joining a community of owners who are bound by common rules dictated by the CC&Rs
(Covenants, Conditions & Restrictions). Because of the common association
shared by the units, any issue involving a given unit (such as delinquency of
dues, or construction defects that may result in litigation) impacts the
marketability of the other units.
Lenders are also more
careful with offering credit on rental units as a renter is less inclined to properly
maintain their home (the lender’s collateral) and the owner is more likely to default
on an investment property than on a personal residence. Because of this, many lenders
require owner occupancy ratios on condo associations that may vary from 51% to
as high as 75%. But Fannie Mae (where most of these loans are sold for preferred
30-year fixed money) does not have any such restriction in its guidelines as
long as the purchase or refinance is for the borrower’s primary residence. So,
it should not matter if 99 units of 100 are rented as long as the one being
considered for financing will be a primary residence.
lenders impose their own overlays or preclusions in order to balance out the
overall risk of their portfolios and many require high owner occupancy levels.
But while the number of rented units poses a hurdle for many lenders, other
have no issue with this whatsoever. With the right lender you can purchase or
refinance a condominium unit as your primary residence without consideration of
the other units’ occupancy status.