Owner Occupancy Ratio: the number of owner occupied condominiums in a particular condominium complex divided by the total number of units in the project. The lower the number, the higher the rental concentration.
Since rental properties are riskier ventures for lenders, i.e., someone in financial trouble is more likely to let a rental property go before they let their own home go, lenders will typically shy away from condo complexes with low owner occ numbers.
FHA wants a minimum 51% of the units to be owner occupied. Most lenders offering Fannie and Freddie financing want a minimum 51% ratio as well. Some have an additional overlay as high as 70%. Did you know that for purchase and refinances of a primary residence or second home that Fannie/Freddie actually have no minimum occupancy rate? Granted, other details still matter such as litigation, HOA delinquencies, HOA reserves, etc.
This makes sense as each time a lender provides financing for a primary residence in a complex, they are raising the owner occupancy ratio and therefore strengthening the complex. This can also attract more people to buy and live in the project.
The minimum ratio if purchasing a rental property is still 51% though. Also, private mortgage insurance (PMI) companies typically require a minimum 51% ratio across the board, so a down payment of 20% will be required.
If you have had a deal unravel in California due to a low owner occupancy ratio and the buyer was putting at least 20% down, call me! The Lending Company may be able ot help.
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