Financing in New York>Question Details

Ny123, Home Buyer in New York, NY

How difficult to get a loan for a condo unit in a building where the majority of units are owned by a sponsor?

Asked by Ny123, New York, NY Sun Jun 6, 2010

I was told (by a seller's agent) that a condo unit that I am interested in has a special condition that might make it harder for me to get financing from banks - there are 29 sponsor-owned units out of total 52 units in the building. What does this mean and why does this make it harder for getting a loan? Also, if I were to try, how difficult is it to get an adequate financing from a bank?

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I shy away from taking buyers to a bldg like this. The brokers below have discussed the problems in getting financing. The sponsor may be able to get a preferred lender for the bldg based on the fact that they will own 29 units. However, the other thing I'd be concerned about is owning a unit in a bldg where the sponsor owns a majority controlling vote on decisions to be made in the bldg going forward. The sponsor will probably rent these units out for now & sell in the future when lending gets easier. I assume this is new construction & while the allure may be great to purchase... they may have even dropped prices drastically to get contracts signed... there's a lot to think about when making a big investment in a bldg like this. You need to think about an exit strategy when you purchase. It may be very difficult for you to sell in the near future if you need to.

Linda Taitelbaum
Citi Habitats
212 844-4342
1 vote Thank Flag Link Sun Jul 18, 2010
Most lenders require a new condo to be 50% sold in some cases, 70% in others. Often you will be told 70%, but there is a more complicated method for qualifying buildings which, when used, may allow the bank to lend 50%. In general, this refers to percent sold OR in contract. Sometimes what happens is when enough units are in contract to meet the thresshold, then all can start closing. Some condos have, of late, sought out and received FHA designation. This then allows only 30% to be sold or in contract, a much easier thresshold to meet and has the added advantage that in NYC for FHA you only need to put down 5% (used to be 3.5%),

Jenet Levy
Halstead Property, LLC
212 381-4268
0 votes Thank Flag Link Fri Jul 16, 2010
I sell many co-ops and condos in Brooklyn, New York and I come across this problem once in a while as well. Usually banks want condo compleexes to have a 51% ownership rate and not only by sponsors. When a sponsor owns most of the properties it doesn't prove to the bank how much individuals will pay per unit to know their worth.

You also need to find out if the condo building you're interested in has a bank or two that they are specifically working with. This is usually the case for new building or newly converted building that has a low percentage of ownership.

I hope my answer helped you out.
Web Reference:
0 votes Thank Flag Link Tue Jun 15, 2010
Sounds like this is a non warrantable condo. FHA financing is not available for such condos that have more than 10% owned by a single individual or entity. Furthermore, the association has to be in the hands of the residents (not the builder or some other investment entity) for at least a year. Also 85% have to be owner occupied (not 2nd homes or investment properties). And out of that 85%, only less than 51% can have a FHA mortgage in place. None of this requirements seems to fit your condo. You won't be able to go Conventional for pretty much the same reasons either. Your best bet is to speak to your own bank and see (based on your history with them) if they would be willing to do the loan. Good luck.
0 votes Thank Flag Link Mon Jun 7, 2010
HI Ny123,

Both Stacy and Amy are correct. If this is not a new building, and it has a low owner occupancy (under 51% for most banks and under 70% for some banks), you are in for a difficult time finding financing. I would suggest speaking to a reputable mortgage broker and getting their opinion on that specific building. I would also speak with your attorney and get a legal opinion on purchasing a unit in such a building.

One of the reasons this low owner occupancy is a risk for banks is if an individual owner, that is the majority owner in the building, defaults, the rest of the units in the building must pay for a much larger share of common charges in the building, which may in turn cause more defaults in the building creating a totally unviable building. Although the idea of the sponsor defaulting seems small, the reality is that sponsors have defaulted in the past and will do so again in the fututre. Banks have become totally risk averse and will not risk giving loans on buildings that do not meet their new (and extremely strict) underwriting requirements.

I hope this helps,

All the best,

(718) 432-5000 ext.601 (Office)
(917) 974-2600 (Cell)
0 votes Thank Flag Link Mon Jun 7, 2010
New York is a unique market and there are many condos which are new construction where there is NO owner occupancy. Many of these development projects have financing in place with preferred lenders. I would need more information from you on what building you are considering making a purchase in to understand exactly the situation. Each one is unique. Feel free to email me directly:
0 votes Thank Flag Link Mon Jun 7, 2010
Yes, unfortunately this has been an issue. 29 of 52 units not owner occupied is too high a percentage and presents a significant risk for the bank. In fact, this is a risk for you as the buyer as well.

I would do a lot of research before moving forward. Who is the sponsor, what are their plans to sell those 29 units, what will they do if the units do not sell, etc. Talk with a few lenders and see if anyone will take on the loan. You should ask if FHA is a possibility. If not, cash is really the only answer.

Good luck!

Stacy Carter - Associate Broker
Home Appreciators - Real Estate & Renovations
at Better Homes & Gardens Real Estate Metro Brokers
0 votes Thank Flag Link Mon Jun 7, 2010
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