Financing in Brookline>Question Details

Fih, Home Owner in Brookline, MA

The Brook House in Brookline now has an owner-occupancy ratio below 50%. How does that affect mortgage approval for buyers planning on living there?

Asked by Fih, Brookline, MA Sun Jan 1, 2012

I have been told that FHA loans require 51% owner occupancy, so buyers will not be able to secure those. However, shouldn't there be plenty of buyers able to secure a conventional conforming loan? I was under the impression that for owner-occupied condos, there is no occupancy ratio requirement for Fannie Mae. I have also read somewhere that they may be a separate 70% owner-occupancy ratio for conforming mortgage insurance -- does that mean that buyers would also not be able to secure any conventional loans with less than 20% down?

Finally, if all the above is true, how much does that shrink my buyer pool for a $400k 2 bed 2 bath condo?

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Greetings,

I am a local mortgage loan officer in Brookline MA, NMLS 380664. I would like to share some thoughts on the discussion about owner occupancy ratios. It is true that Mortgage Insurance Companies will require 70% owner occupancy for established condo projects; however they will accept 51% for new construction. This is a detail that often gets overlooked. http://www.mgic.com is a great resource for mortgage insurance questions. If a buyer has the 20% down to avoid mortgage insurance and intends to live in the unit aka owner occupied, Fannie Mae does not require any occupancy ratio. If it is an investment purchase for that buyer, then there must be a 51% owner occupancy. However, please note that some First Time Homebuyer Programs like Mass Housing which follow conventional aka Fannie Mae guidelines actually have a 70% occupancy requirement that mirrors the MI companies. There may be other issues with a condo that make it ineligble for Fannie Mae aka Secondary Market Financing options. As others have stated, a portfolio loan may be a great option if the buyer does not have the large downpayment; however I would always encourage buyers to review all their options before selecting the right loan for them.
1 vote Thank Flag Link Tue Jan 3, 2012
I am an agent, not a lender, but it has been made very clear to me by lenders that with less than 51% owner-occupancy, a buyer will require a portfolio loan and 20-25% down payment. That does not mean you cannot sell your condo--it does reduce the buyer pool (who knows by how much) but there are also a lot of buyers out there who have large down payments or are paying cash. If the unit is priced right you should be able to sell it. If you would like to talk about this--no strings--feel free to email or call me.

Ellen G. Friedman, Keller Williams Realty, ellengfriedman@comcast.net or 617-448-1542
1 vote Thank Flag Link Sun Jan 1, 2012
Please note, all responders, this is a question about conventional mortgage INSURANCE, not the loan itself. I have run into this twice in the past 2 weeks, has nothing to do with the lender but the insurance. I am being told it's 20% down or 70% OO to get condo insurance OR go FHA (which we all know is tough in most markets and super expensive for their MI now).
0 votes Thank Flag Link Thu Jan 3, 2013
Less than 50% owner occupancy can mean that the association is not in good condition and it can also mean the building(s) need help too. Lenders are much more cautious today. you can find the actual percentage by asking the board or president of the association.

The % down can be relative to the strength of the buyer also.

Cash buyers are not affected, of course.
0 votes Thank Flag Link Mon Jan 9, 2012
looking into my lender guidelines for owner occupied purchase: we have lenders that will go with less than 20% down with less than 50 percent owner occupancy. There is a caveat though: you cant have any one person owning more than 10% of the units.

Is there an investor (person or entity) in the building that owns 10% or more of the units??
0 votes Thank Flag Link Wed Jan 4, 2012
Amy, that was very insightful and well written ... That should clear up some questions up for Flh.

Thanks!

http://territory.com
Web Reference: http://territory.com
0 votes Thank Flag Link Wed Jan 4, 2012
Less then 51% owner occupied means that a buyer cannot get a conventional loan nor a FHA. The mortgage would have to be a portfolio lender and most of them require at least 51% owner occupied. This greatly shrinks the buyers if mortgages are hard to get on the condos.
If you can do not try to sell, numbers may change in a few years.
0 votes Thank Flag Link Tue Jan 3, 2012
Yes it will greatly decrease the buyer pool. Without 51% Owner occupancy financing a purchase there will be difficult without a larger deposit of 20% or more
0 votes Thank Flag Link Tue Jan 3, 2012
Unfortunately this will effect the ability to finance the condo(s) and yes because of that the buyer pool will shrink. Don't let a listing agent sell you differently. You are doing a good thing educating yourself on the process and loan packages available in this scenario before you sell your home. A lot of agents wont educate their clients (seller and buyer) until it's too late (ex: go under agreement, keep your property tied up for a month+ only to find out the buyer can't get financing)

That said, there are plenty of buyers out their who can do conventional financing but just know that depending on the bank buyers putting <%20 still might have problems with the financing.

Your point about no owner occupancy requirements for Fannie Mae if the place in owner occupied does not sound right however your point about conforming mortgage insurance sounds familiar. Confirm both with a lender.

Best option: Before listing your home go to a local brookline bank and talk to a loan officer about your building and the low occupancy. They may finance a buyer. That way when you list your home you can specifically state in your property description/listing sheet, with X requirements X bank will finance the loan.

Good luck!

http://territory.com
Web Reference: http://territory.com
0 votes Thank Flag Link Mon Jan 2, 2012
It is impossible to determine by how much your buyer pool will shrink as a result of a low owner occupancy, since the ratio of buyers with large downpayment or cash vs low downpayment is always changing. As an educated consumer, I'm sure, you know that this is not something you or I have any control over. If you or anybody in the building is thinking about selling the unit, I'd suggest, to engage an experienced agent able to excersize other means of attracting buyers to the condo than just a low downpayment to get it sold for the best possible price. I recently sold a condo with only 20% owner occupancy to a buyer who put 10% down and got a portfolio loan.

It is good that you are aware of an issue as it will help you choose the right agent and prepare the condo to market, when you are ready for it. Remember, a first impression is very important and those who attend to it do better than those who don't.
Web Reference: http://boc-re.com
0 votes Thank Flag Link Sun Jan 1, 2012
FHA is out and possibly any less than 20 percent down conventional as pmi add and extra level of scrutiny.
0 votes Thank Flag Link Sun Jan 1, 2012
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