Financing A Condominium

July 18th, 2010

condo building

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.

FHA loans

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.

Conventional loans

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

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 real life story

-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.

Another real life story

-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 third example

-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.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

18 Responses to “Financing A Condominium”

  1. tom hayes says:

    All true. FNMA and Freddie Mac have waived occupany requirements if the borrower intends to use the property as a primary residence or a second home. However, I am concerned with the “overlaying” of risk currently being applied by some lenders.

    Can you comment on this? We know many lenders apply stricter guidelines regarding credit scores, and debt ratios, than the GSA they intend to sell the loan to. Are these lenders also raising the bar for owner occupancy ratios?

  2. brianm says:

    So far the only overlays I know of are for lower credit scores, and for any condo loan over 75% loan-to-value. I have not heard of any lender arbitrarily raising their requirements over and above what Fannie Mae requires.

  3. Colin says:

    I actually recently attempted to refinance my condo (my primary residence) in a very low owner-occupied (39%, 61% investors, no commercial space) complex in Boston; I went through the entire process, passed every requirement (income-to-debt, equity level in the unit, credit score, etc), and then was informed at the last minute that my bank, along with virtually EVERY lender, would under no circumstances approve my refinance. I contacted several other lenders and was told the same. Is there any way around this without having to go with a portfolio lender? The complex is very much an established building (over 90% of the units are sold & settled, the association is in the hands of the owners, and no construction will be planned anytime in the near future), having been established for approximately 20 years.

    Any advice or suggestions?

  4. brianm says:

    I have a feeling the lenders that you are talking to, which sounds like all of them, are not aware of the recent Fannie Mae changes. I would get back to several of them and let them know that Fannie Mae has recently changed the rules, and that they can indeed do this loan now. However, please realize that the loan must be a conforming loan. If it is a Jumbo loan then that it is one that would not follow Fannie Mae and Freddie Mac guidelines, and then I could see the reason for their rejection. Otherwise, if it is a conforming loan amount, I think you simply need to educate someone and ask them to do the research, and you should be able to get this loan through.

  5. Patti says:

    I’m trying to buy a condo/town home property. We are coming in with 10% down. Credit score is at 689 and now they are telling us that we need a cosigner. I am confused because they mentioned something about the appraisal?

    Also, can my father co-sign on a conventional loan if he owns two other properties?

  6. brianm says:

    There are an enormous amount of variables that go into getting a condo loan, so its hard to answer your question without knowing more.
    It depends on:

    -I assume you are applying for a Conventional loan?
    -is the 10% down all your own savings?
    -what is your income?
    -what are your debt ratios?
    -what state is the property in?
    -what is the sales price of the home?
    -how many units are in the condo, how many are owned by owner occupants, and how many are owned by investors who rent the unit out?
    -is the condo under going any litigation?
    -does one unit owner own 10% or more of the units?

    A 689 credit score by itself does not disqualify you from getting a 10% down Conventional loan, but as you can see there are a lot of other
    moving parts. If for some reason you really do need a co-signer, I am not sure its even allowed to have a non-occupant co-signer on a
    10% down loan. You need PMI on a 10% down loan, and I do not believe any PMI companies will allow a non-occupant co-signer’s income
    to count towards qualifying. They may with 20% down, but likely not with 10% down.

    But if a co-signer is allowed, having 2 other properties is not a problem.

    I’d need to hear a lot more detail, and it sounds like you need to get a lot more detail, exact detail, on all of the reasons for the problems.

  7. Emylin says:

    I am trying to refinance my condo but can’t find a lender who would let me process it.
    i believe that my condo complex is 50% owner and renter. I live in the condo but would like to refinance to a short term and lower interest rate. Does anyone know a loop around this? I would really like to refinance.


  8. brianm says:

    A 50% investor level alone may not be a problem. I will email you some other questions offline and we’ll discuss.

  9. Lester says:

    Where can I find a bank or lender to do a cash out loan for a condo that is not FHA, Fannie Mae or Freddie Mac approved (Non-Warrantable Condo)?

    1. Highest number of units owned by one entity: 11%
    2. Percentage of units rented: 55%
    3. Percentage of units with association dues delinquent more than 30 days: 21%


  10. brianm says:

    I am afraid there is no one that will do that loan, no one I know of anyway. No more than 15% of the unit owners can be behind on their dues for most loans,
    and no one will do a loan in a building where there is one unit over who owns over 10% of the building. So you have two major problems I am afraid.

  11. jessicad says:

    I have a borrower wanting to buy a condo as a primary residence in a complex in which he already owns two investment condos. Is this allowed?

  12. brianm says:

    One can buy a condo in a high investor level building, as long as it is an owner occupied loan, and as long as it is a “Conforming” loan. There are still other things that will need to be checked, like the budget, reserve account, whether the condo is undergoing litigation, etc. Also, make sure that one unit owner does not own more than 10% of the units. But in theory, you should be OK to get a loan for this client. Check in with anything else.

  13. paulL says:

    I am buying a condo in Florida and the bank does not want to accept the building because more than 51% if units are not own occupied. Where could I get a copy of the guidelines you make reference to? Bank is BoA

  14. brianm says:

    Are you buying the place to live in? It has to be a primary residence? And is the new loan amount below $417,000? However, even if the above is the case, banks do not have to follow FNMA rules. They can have what they call “overlays”, which are their own rules they overlay on top of FNMA’s. And they may have overlays that say even if FNMA will buy the loan, they they don’t care, and that they will not. But you should be able to call one of a number of other lenders and get this done.

  15. Paul says:

    Has anything changed? Are you aware of any lenders in Southern California with an appetite for these loans?

  16. brianm says:

    Hello Paul, I’m afraid things are exactly the same. It is difficult to get a condo loan through, and the same restrictions exist now that have existed over the past several years. But it’s not like condominium loans are impossible to get. I do plenty of condo loans, it is just that they get put through a very strict filter. If you ever want to let me know some exact specifics of a condominium that you think is difficult or impossible to finance, I can let you know if there are any options.

  17. Maria says:

    Hi Brian, I am about to purchase a condo which only 25% of tenants are owners. Then seller suggested me to obtain the loan from a credit union. Now the credit union informed me that there is one entity who owns over 10% of the units. This is my first property and I plan to reside there. Is there a waiver that i can work on, or is it true that no lenders will take this loan? It is a condo in Souther California. Thanks.

  18. brianm says:

    Hello Maria, I am afraid this is true. This is a Fannie Mae and Freddie Mac rule that they will not purchase a loan in a condominium where one unit owner owns over 10% of the units. You may have a solution if you find what is called a “portfolio lender” where they do loans according to their own guidelines and not according to Fannie Mae and Freddie Mac guidelines. But if you do find one of those type of lenders, they are usually very expensive as far as their interest rates and other terms. And portfolio lenders are few and far between, I do not even of any to refer you to. So I am afraid I have no solutions, sorry.

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