Home Buying in Chicago>Question Details

p8ntguy36, Home Buyer in Chicago, IL

Is 25% rental cap in condo building too low? Is obtaining a loan to purchase more difficult if rentals are above 25%?

Asked by p8ntguy36, Chicago, IL Thu May 23, 2013

I live in a building with about 40 units. The HOA caps the rentals at 25%. They stated the reasoning is that banks will not loan to potential buyers if the rental units are above 25%. Is there truth to this? I've been reading that the FHA requires it to be less than 50%.

On an unrelated note, if an emergency rental was needed, can one utilize a quitclaim deed with a potential renter without violating HOA's rules and regs?

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If the buyer is an investor, it will be mnore difficult to get financing although lenders have loosened up their previous tight loan requirements. These tight loan requirements over the past 5 yrs is the reason HOA's have created these caps. However, if the buyeris an owner occupant, it has become much easier to get a loan. The caps are no longer needed most of the time, but the HOA'a will be slow to figure it out. My web site has some lender references who can help get loans.
1 vote Thank Flag Link Thu May 23, 2013
If you are putting a down payment of 20% it will not matter what the investor concentration is. If less than 20%, there might be some addtional restrictions from lenders. I would be happy to help you. Joanna773-327-3580
0 votes Thank Flag Link Thu May 30, 2013
Buildings with a higher percentage of owner occupants tend to be better taken care of than pure rental buildings.
0 votes Thank Flag Link Wed May 29, 2013
Ask this question to an experience lender
0 votes Thank Flag Link Tue May 28, 2013
great question for your local lender
0 votes Thank Flag Link Fri May 24, 2013
Some banks will give a hard time on refi for over 30% rented but if you keep under 50% rented its fine
0 votes Thank Flag Link Thu May 23, 2013
No truth to it.....In Conventional terms, if it is an existing condo association (turned over to the HOA) and 100% conveyed (closed) then if the borrower is a owner-occupant/2nd home borrower the investor (rental) percentage doesn't matter. If the borrower is an investor then at least 51% of the units must be owner-occupied/2nd homes.

FHA doesn't allow more than 50% of an association to be rented to be eligible for FHA financing. Once more than 50% of the units are rented then FHA will not lend and the association's FHA approval could be withdrawn by FHA.

Associations are putting rental caps in place so investors don't buy up units, since prices are very reasonable. Some Association's want their condos to be more owner-occupied than investor so they cap the rentals at a certain percentage.

Steve Stenger
Condo Approval Professionals LLC
E-mail: steve@condo-approval.com
0 votes Thank Flag Link Thu May 23, 2013
Dear Home Buyer,

Philip gave you an excellent answer.
0 votes Thank Flag Link Thu May 23, 2013
The lower the rental % in the building, the better. Fannie Mae allows for as low as 51% owner occupancy however many lenders have tighter restrictions and will deem the building "non warrantable" if they aren't met.

There are other avenues to approve a building with Fannie however. And there are also lenders that will lend money on non-warrantable buildings.

We can provide financing for all types of condos, depending on the situation. Please contact me if you'd like to discuss further. I'd be happy to help.

(As for your other question, that sounds like it's legal but I"m not sure. Either way, I don't think the HOA would be too thrilled)


JP Marzano
1st Advantage Mortgage (a Draper & Kraper Co.)
312-608-1555 - cell
0 votes Thank Flag Link Thu May 23, 2013
the reason for the 255 cap is to comply with Fannie Mae guidelines. If the rental cap exceeds this your units won't qualify for financing on the secondary market and you'll be stuck trying to find cash buyers. Your condo association is right and whatever you're reading is absolutely dead wrong and I'd look for more reliable sources of information.

There's no such thing as an emergency rental, quitclaim deeds are for sales not rentals.

Rent to own is more an urban myth than anything else. Typically it's ultra savvy sellers taking advantage of less savvy buyers. In more than 35 years I have never once seen a buyer who entered a rent to own agreement ever own the property and the sellers never really intended for them to do so.

You really need to speak to a local attorney and or Realtor, I can tell by your questions that you're going to find yourself having substantial problems if you don't.
0 votes Thank Flag Link Thu May 23, 2013
Thank you for taking the time to reply. Your input is greatly appreciated. I am not ready to rent, however, I think learning some ins and outs now might not be a bad thing. The "emergency rental" was regarding me taking a job that required residency in another city and not being able to afford 2 homes.
Flag Thu May 23, 2013
Or.... is rent to own an option?
0 votes Thank Flag Link Thu May 23, 2013
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