Condo investment ratio - Randy DeMille with Atlantic Bay Mortgage Group
As a loan officer, I often times get asked "can I get a loan in a condo association if there are a lot of investment units"? Like with everything, "it depends".
This is an important issue that is a part of the new real estate market we are in, and lenders are looking more and more at the number of investment properties within a condo association. From their perspective, investment or rental properties have a higher rish of foreclosure, which could bring down the value for the association, so this is why a high number of investment units is considered a risk, regardless of the qualify of the buyer. HOWEVER, there are ways to still obtain financing, and it ultimately depends on the type of loan a borrowere is requesting:
Conventional: The standard guidelines is that no more than 30% of all of the units can be investment. In other words, at least 70% must be owner occupied. This is verified through a Fannie Mae Condo Questionnaire that is provided to the association and must be filled out during the loan process. There are also other questions that apply, such as whether or not the association is in any type of litigation, if there are serious delinquencies in condo dues for the current owners, and if more than 10% of the units are owned by one entity (another high risk factor which must be addressed).
Here's the good news: If a borrower is putting at least 20% down as a primary residence (and 25% as a second home), and gets a "limited review" when the application is submitted through Desktop Underwriting (Fannie Mae's online approval system), then the investment ratio is NOT considered (and neither are the other factors aforementioned). Typically, a borrower would have to be a fairly strong candidate to receive this limited review rating (such as a good credit score, sufficient income, and extra liquid assets). If purchasing as an investment property, you cannot get a limited review and must pay cash or attempt to find a subprime loan if you want to purchase a condo with more than 30% investor units (unless it's a Homepath property, in which case you can purchase with as little as 10% down with no appraisal, no mortgage insurance, and no investment ratio calculation).
FHA: This is also an owner occupied loan only, and there are two criteria that apply with FHA. First, the condo has to be on the FHA approved list, which is updated once per year now. Contact me to check and see if a particular condo is on this list. And then, no more than 50% of the units can be investment property, regardless of whether or not it's on the approved list. Make sure to check your FHA maximum loan amount in your area as well.
VA: This is the most lenient type of financing for condos, and also is beneficial because a buyer can still buy with zero percent down. The condo just has to be on the approved VA list, regardless of investment ratio. This list can also change from time to time, but is not as strict as the FHA list. Again, this is an owner occupied loan only, and feel free to contact me if you would like to know if a certain condo is on the list.
The only other creative way to purchase a condo with a high investment ratio (other than owner financing) is if there is a VA loan on the property, and you go to assume that loan. You would pay the owner the equity in the home (usually in cash) and take over their existing loan balance at their current interest rate. You would thus apply for this mortgage assumption through whomever is servicing the loan. This is a great way to purchase investment property in general and you can have unlimited VA loans through an assumption! Since there's no new loan created, the investment ratio does not apply.
-Randy DeMille with Atlantic Bay Mortgage Group
Please note that the mortgage industry guidelines change at any given moment, and that the information in this article is subject to change.
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Randy DeMille is licensed to originate mortgage loans in Virginia and North Carolina.
Atlantic Bay Mortgage Group is an Equal Housing Lender and is licensed by the Virginia State Corporation Commission, License #MC-936, NMLS# 72043.
Randall "Randy" F. DeMille, NMLS# 112145.