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How does the ratio of owner/tenant occupancy of a condominium in California affect the ability to get mortgage financing?

Asked by Inquiry, Pasadena, CA Fri Aug 20, 2010

Should HOAs include rental restrictions in their governing documents to protect themselves against too many investors purchasing units and then renting them immediately as well as protecting the ability of current owners to refinance their units or new buyers to purchase them?

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Rudi Hofmann’s answer
@ Shel-lee Davis,

That one person was in error. Sorry 'bout that. Although, it appears they is no limit if it is an owner-occupied or 2nd home purchase. N/O/O limitations are on Investment Purchases.
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I also looked up lender guideline on conforming GSE loan amounts. Here is one lender's guidelines as to occupancy: Established Projects are projects in which 90% or more of the total units have been conveyed to the unit purchasers and the project is complete. Project is not subject to additional phasing or annexation. Developer is not in control of the homeowners association.

If subject property is for investment, 51% of total units in the project must be conveyed as primary residence or second homes. However, this occupancy requirement does not apply when the subject property is for a primary residence, second home or REO unit that is for sale (not rented).
No single entity other than the developer can own more than 10% of total units.
Unit owners control the Homeowners Association. .... Happy funding, Rudi
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Sun Aug 22, 2010
I understand the problem, ownership of more than 10% of a complex by one owner disqualifies all the units for FHA financing. However, policing what an owner does with their units could be a tough task. I've seen HOA's say that owners couldn't allow their family to use their unit when the owner is on vacation. I see nothing but lawyer fees on this issue.
1 vote Thank Flag Link Fri Aug 20, 2010
Just wanted to clarify my answer, as it appears at least one person misunderstood what I was trying to explain. According to HUD Mortgagee Letter 2009-46B - Condominium Approval Process for Single Family Housing - a complex must be at least 50% owner occupied for units in that complex to qualify for FHA financing. It also states, "5. Investor Ownership: No more than 10 percent of the units may be owned by one investor" and "6. Delinquent Home Owners Association (HOA) Dues: No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payments."

Since we are seeing that many of todays buyers are using FHA, and that many of todays lenders are following HUD guidelines for lending on condominium lending (although some may apply more stringent guidelines), it makes sense to use these government guidelines as a minimum.

If your condo association can set parameters based on these guidelines, you will have a greater chance of insuring the financability of your complex. Hope this helps. Dare to Dream.

Shel-lee Davis, QSC®
Certified Distressed Property Expert – CDPE®
Short Sale & Foreclosure Resource – SFR®
Certified HAFA Specialist – CHS®
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
http://shel-lee.listingbook.com
0 votes Thank Flag Link Fri Aug 20, 2010
I have no idea what lender will go up to 50% - 51%. Most lenders will go to 15%. We'll go to 30%. More than 10% by one investor is a rule that no one that I am familiar will go beyond. .... Happy funding, Rudi
Web Reference: http://wwww.umboc.com
0 votes Thank Flag Link Fri Aug 20, 2010
In addition to 10% owned by a single investor (as noted below), a complex must be majority owner occupied. I have had some lenders say that means 50% and others say that mean 51%. And, there are also many other requirements such as HOA delinquencies, surety bonds, insurance coverages, etc.

If you are currently living in a condominium complex and are concerned about the ability of you and your fellow homeowners to sell and refinance your units, then I suggest you get actively involved with the Board of Directors. This way you can help to stop the problem before it happens (if you are not too late).

There are many Home Owners Associations that limit the number/percentage of properties that can be converted to rentals. I do not know how successful they are at enforcing this, however, if people know when they buy that there is a restriction, it would probably limit the number of investors who will actively seek to purchase properties in that complex. Good luck with this and Dare to Dream.

Shel-lee Davis, QSC®
Certified Distressed Property Expert – CDPE®
Short Sale & Foreclosure Resource – SFR®
Certified HAFA Specialist – CHS®
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty
http://shel-lee.listingbook.com
0 votes Thank Flag Link Fri Aug 20, 2010
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