Scott Storace - Branch Manager, 100 Pacifica Drive Ste. 140, Irvine CA 92618 NMLS #226339 949.973.0141

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Condominium Occupancy

Orange County, CA – You found the condominium that fits your lifestyle.  Your lender checks the condominium occupancy mix and tells you that 10% of the units are owned by one entity and another 40% are owned by investors. So what…you remark! Occupancy mix can change the condominium financing package. You’re now looking at a non-warrantable condominium. Non-warrantable condominiums are those that can not be sold to Fannie Mae or Freddie Mac. Therefore, you’ll have to find financing that will allow this condominium occupancy mix. And you can plan on spending more to finance it since lenders will add a small premium.

Why is condominium occupancy so important? It boils down to risk…plain and simple. Lenders are more likely to foreclose on investment properties than primary properties. Think about it. If you hit financial straits would you stop paying your primary home or your investment property first? That’s right! You would quit paying the mortgage on the investment property. And what if you happened to own more than 10% of a specific project when you hit financial straits? It’s likely you’ll quit paying on all those units. Therefore, investors want to measure the risk. They’ll verify that the development meets specific condominium occupancy requirements.

These requirements are defined by Fannie Mae and Freddie Mac. Let’s review some of the questions we’ll ask to make sure we meet the condominium occupancy guidelines.

  1. Does the project contain more than 20% commercial space?
  2. How many units are owner-occupied? (Includes primary and second homes)
  3. How many units are non-owner occupied?
  4. Does any single entity own more than 10% of the total units in the entire project?
  5. If you’re purchasing an investment property, are 51% of the remaining units owner occupied?

But there are exceptions to this rule! Currently, if you put 20% down on a primary property then we don’t look at condominium occupancy. That’s right. So if you have a 20% down payment you can check occupancy mix off the list of requirments.

It’s always good to know your condominium occupancy though. If you’re like me, you may be thinking a few steps ahead. How hard will it be to sell my condominium should I need to in the future? If the occupancy mix is heavy with investment properties then the pool of potential buyers shrinks. It’s good to know what you’re getting into!

Identifying the occupancy mix is a simple process for a lender. We just need the help of the HOA. So, plan on providing your lender with a good contact at the HOA and they will touch base to ask the condominium occupancy questions.

Scott Storace

 

 

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