It has been established, for as long back as my 25 year mortgage career goes, that if a condo has a high investor level, you were going to have a hard time getting a mortgage. The investor level of a condo is how many units of the total investors own. For example, if a condo has 100 units, and 60 are owned by investors to be rented out and 40 units are owned as primary residences, then the condo has a 60% investor level.
It was always said that FHA wanted to see at least 51% owner occupancy and no more than a 49% investor level. And banks, PMI companies or Fannie Mae might require 60%, 65% or even 70% owner occupied levels, restricting the investor level to a low level. It has been historically shown that condo buildings that are more heavily owner occupied have better performing loans with fewer delinquencies, and this is why Fannie Mae, Freddie Mac, banks and PMI companies analyze this data.
However, I have discovered a guideline change for Fannie Mae and Freddie Mac that says if loan is for a primary residence, with 20% down, and if the condo building is established, that there is no analysis of the investor level at all. What defines a condo building as established is that the building is at least 90% sold and settled, no additional construction is planned, and that the homeowners association has been turned over from the developer to the unit owners.
The big news here is that if you have an established condo building, and are buying a unit as a primary residence, and have 20% down payment, then you do not have to worry about the investor level. 20% down is required because PMI companies still analyze investor level, so this would not work for a 5% down or 10% down loan.
On the one hand, if you love a certain unit and want to buy it at all costs, then this is good news. Of course, you may want to give consideration to buying in a heavily investor owned building for the same reasons that the banking industry does. But here are some scenarios where this has benefited the consumer:
-A client of mine wanted to refinance a loan in a condo building that has 12 units, 4 of which were owned by owner occupants, 7 were owned by investors, and 1 was still pending sale. The building had met the 90% sold and settled requirement, the homeowners had been in control of the association for over a year, and the unit my client wanted to refinance was his primary residence. With an owner occupancy of 33% and an investor level approaching 66% (depending on who buys the last unit) this building would have been impossible to finance up until recently. Under current rules my client will be able to take advantage of refinancing to drop his interest rate quite a bit.
-A client I have done loans for in the past wants to sell some condos he owns in a highly investor owned condo building. He was concerned that his buyers would not be able to get financing. I was able to tell him the good news that he could ensure his buyers financing as long as they were buying a unit as a primary residence and were qualified according to the above.
-A client wanted to buy a condo unit to live in as a primary residence in a building with a 51% investor level, with only 49% owner occupants he was concerned he would not be able to get a loan. I told him that as long as the building was established and he could meet the above parameters, then he would be able to get a loan.
This is big news for many condo buildings that have historically had higher investor levels and have thought they may be locked into being labeled as being a building that is hard to get financing in. These latest rules will help sellers sell, and buyers buy, and condo buildings get some investor owned units back in the hands of owner occupants.