What does lower owner occupancy mean and why would a 20% requirement down be needed? (its mentioned in the listing)

Asked by Nicole Brase, Boston, MA Thu Jan 5, 2012

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16
Kevin Vitali, Agent, Tewksbury, MA
Fri Jan 6, 2012
Many loans have owner occupancy guidelines that need to be met. As Andrew mentioned, MFHA requires at least 50% owner occupied. Each loan program will have different criteria.

But to answer your question, generally speaking the lower the owner occupancy the less stable the complex. If the units are not occupied by the owner in many cases they are investor owned and rented out as an investment. Investors are in the business to make a return on their investment and do not view the investment the same way an owner occupied homeowner would. Investors are generally not in favor of capitol improvements that may cost them more money cutting into their profit margins. Their main goal is profit as where a owner occupied home owners goal is to have a pleasant place to live.

In the past, complexes that are heavily owned tend to have a lot of deferred maintenance.

Traditionally investor owned units have a higher rate of foreclosure and that is why the banks have such guidelines, to protect their investment.

With that said, it is important for condo buyers to look at the overall picture of what is going on in the complex. Is owner occupancy going up or down? How do the financials look? Also, remember renters don't take care of their property the same way a homeowner would. As owner occupancy goes down I think buyers looking to live their should look very cautiously at the overall picture.

There have been cases where the tides turn and owner occupancy has creeped down to 20-30% of an entire project, making units almost un-financable. If you are a unit owner that needs to sell you are really at the mercy now of one of the investors picking up the unit for a greatly reduced price. They end up calling the shots. I have sold a few units in a complex where investors are snatching up properties because of the low cost. One investor in particular is purposely driving down the sale of the units, so he can pick them up for less and less money. In many cases if one investor owns more than 10% of the units in a complex that will also become problematic when it comes to financing. Don't forget that each unit will also constitute for one one vote when it comes to making decisions about how to spend money for the condominium complex.

Hope this quick overview helps in understanding why banks have such criteria..
2 votes
Great response!
Flag Thu May 2, 2013
Andrew Schena, Agent, Boston, MA
Thu Oct 10, 2013
There's multiple situations to consider in a unit like this. Regarding the 20% down, yes, it's because it's Non-Warrantable and most FNMA lenders and brokers will not finance a unit if the concentration is below 50% owner occupied. It's not impossible to finance the unit, however, you just have to know what banks to speak with. Mt. Washington Bank, a division East Boston Savings Bank, are extremely familiar with these loans, and typically will portfolio such a loan, if it makes sense. By portfolio, I mean they will hold onto and service the note, and not sell it off, like a broker or traditional FNMA lender.

What's most likely happened in the building is that as rents have skyrocketed in town, unit owners have realized they can earn a significant cash flow by renting their units instead of selling them. This, coupled with low interest rates, have created that crushing demand of late, because there's no inventory in South Boston. And if there is, it's crushed with 7 offers the day of the open house, all over asking.

If you'd like the contact at Mt. Washington, feel free to email me: Andrew@Capresidential.com, or come by and see me if you're in town at 611 E Broadway. Best of luck.

Andrew
1 vote
Mikel DeFran…, Agent, Canton, MA
Sun Nov 25, 2012
Lower owner occupancy will affect the ability to gain financing. Speak to your lender and they will give you the guidelines. One of the reasons condos are hurting a bit more, especially in areas with lower Owner Occ rates
1 vote
Greer Swiston, Agent, Newton, MA
Thu Jan 5, 2012
MassHousing has guidelines for Condominiums too. They won't finance unfinished projects ... however they allow owner occupancy to be as low as 60% (which is a bit lower than FHA or other conventional loans which tend to look for 2/3 or even 70%)

You can take a look at the guidelines found at http://www.masshousing.com under their frequently asked questions. Just realize that you'll need to watch the parameters and just ask the questions of the seller and check with your MassHousing consultant to make sure that the condo has potential of meeting their guidelines.

You may want to consider working with a real estate agent with experience in this area to help you navigate this. Just a suggestion.
1 vote
Andrew Adams, , 01915
Thu Jan 5, 2012
Condo that is non Warrantable is my guess. Meaning it will be difficult to finance...difficult to sell! Not qualities you really want in something you could be looking to sell down the road.
1 vote
David Laven, Agent, Boston, MA
Mon Nov 12, 2012
This is a common problem these days. My team specializes in helping you work around these issues. Please feel free to call me at 617-259-0235!
0 votes
Leigh, Home Buyer, Allston, Boston, MA
Sun Aug 26, 2012
Following up on this question: what if owner occupancy equals 50%? I.e. I am interested in a 2 unit house where one unit is rented and I would live in the second.
0 votes
Christine Mo…, Agent, Wilbraham, MA
Tue Jan 10, 2012
Some people like an envirnoment where they get to know their neighbors and not absentee landlords
0 votes
Heath Coker, Agent, Falmouth, MA
Mon Jan 9, 2012
Condos are tricky for finance. Larger complexes are easier to get a loan on in this economic cilmate. Smaller complexes have a harder time meeting the requirements for lenders. This is another reason to look at single family homes instead of condos.



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0 votes
Andrew Adams, , 01915
Thu Jan 5, 2012
Greer MHFA requires 50% Owner Occupied not 60%
0 votes
Andrew Adams, , 01915
Thu Jan 5, 2012
If the Owner occupancy is less than 50% the Condo will not be approved MHFA.
0 votes
Nicole Brase, Home Buyer, Boston, MA
Thu Jan 5, 2012
I'm going with a Mass Housing Loan so FHA has nothing to do with it...so now what?
0 votes
Greer Swiston, Agent, Newton, MA
Thu Jan 5, 2012
Obviously, the best thing to do is to ask the seller/listing agent these questions.

However, I would hazard a guess that they mention lower owner occupancy to hint that there might trouble with financing ... I would guess that they are trying to hint that you may not qualify for a conventional loan ... Fannie Mae, Freddie Mac and FHA have very specific owner occupancy requirements for financing condos.

It's possible that if they're mentioning 20% down because they may have a lender that has found a way to provide financing under the right circumstances one of which is having at least 20% down.

Definitely ask questions, but that is my guess.
0 votes
Ann Ryan, Agent, Doral, FL
Thu Jan 5, 2012
There are some condo buildings that are basically converting gradually back into apartment buildings, with multiple owners, instead of a single manager. I would be very cautious of buying into a property like that, the investor-owners and owner-occupants can have much different long term goals, and they may gain the majority on the condo board.
0 votes
Andrew Adams, , 01915
Thu Jan 5, 2012
Low owner occupancy? If it's below 50% owner occupied it won't be difficult to get FHA financing...it will be impossible!
0 votes
Yannis Tsits…, , 01742
Thu Jan 5, 2012
Hi Nicole,
very difficult to get an FHA loan, it will have to be a portfolio loan, if a portfolio lender wants to do it.
Yannis
0 votes
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