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Less Than 51% Owner Occupancy? OK For Conventional Loans

By
Mortgage and Lending with Caliber Home Loans NMLS#284800

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.

Posted by

 Kevin Kueneke, NMLS # 284800
San Diego County Mortgage Specialist
VA Mortgage Loan Specialist | FHA Mortgage Loan Specialist
Direct Lender | Mortgage Banker
Phone 760-500-1919 | Fax 619-419-2324

Visit My Website: kevinkloans.com 

Mann Mortgage LLC | NMLS #2550
11230 Sorrento Valley Road Suite 225| San Diego CA 92121

Comments (9)

Rodney Mason, VP of Mtg Lending
Guaranteed Rate NMLS# 2611 - Atlanta, GA
AL,AR,AZ,CA,CO,FL,GA,IN,MI,MS,NC,SC,TN,TX,VA,WA

I find that there are a lot of people who don't really know what is and is not a requirement for a condo approval.

Mar 16, 2011 02:23 PM
Kevin Kueneke
Caliber Home Loans - Encinitas, CA
San Diego Mortgage Banker

Very true, seems like a lot of people in the loan biz are unsure. 

Mar 16, 2011 04:29 PM
Anonymous
Bob Shew

Kevin - thank you for this post. I have recently run into this situation on a transaction with a 30% down payment and the loan officer (a big bank) was adamant that the occupancy minimum of 51% was a Fannie rule.  Can you loan in Northern Cal?

Mar 17, 2011 03:26 AM
#3
Kevin Kueneke
Caliber Home Loans - Encinitas, CA
San Diego Mortgage Banker

Bob! Yes, I do lend in all of CA, drop me a line today to discuss your situation.

Mar 17, 2011 03:30 AM
Anonymous
Vanessa

Hi Kevin, here is a real challenge for you: second home, condo; owner occupancy rate 56%, delinquency rate 8%, conventional loan, 10% down, good reserve, excellent credit; San Diego (Poway) area.

Is it actualy possible or not?

Jun 27, 2011 06:36 PM
#5
Anonymous
Melissa
Hello, can u help w a condo purchase in nv with only 41% occupancy with 10% down? Thanks
Jan 26, 2012 01:39 PM
#6
Kevin Kueneke
Caliber Home Loans - Encinitas, CA
San Diego Mortgage Banker

Hello Melissa, I am only licensed in the state of CA.  However, you still need 20% down payment to avoid mortgage insurance - the mortgage insurance companies want a minimim owner-occupancy rate of 51%, some even want a minimum of 70%.

Jan 26, 2012 02:14 PM
Anonymous
Dan B

Hello Kevin,

We are currently in Escrow and our lender backed out 3 days before close. We're pretty bummed out.

This would be an investment loan on a 4 unit condo complex with only 1 unit currently owner occupied. 25% down. We own our primary residence and this was going to be our retirement property that we rented until we moved there (its at the beach).

What are our chances of finding a lender to fund this? 

Dan

Aug 28, 2012 01:20 PM
#8
Kevin Kueneke
Caliber Home Loans - Encinitas, CA
San Diego Mortgage Banker

Dan - in a 4-unit condo complex, only one unit can be non-owner occupied per Fannie/Freddie guidelines.  Your best bet would be to find a private money lender, and the down payment would most likely need to be increase to 35%.

Send me an email with your contact info to discusse further.

Aug 29, 2012 09:33 PM