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Old 04-23-2010, 07:05 AM
Location: Saint Charles, IL
3 posts, read 72,224 times
Reputation: 17


I have a question for the mortgage experts.

I own a condo that I am about to rent out and the board is considering amending the bylaws to set a maximum of 20% of the units that can be rented out at a given time. The building has 16 units so 3 would be allowed to be rentals. My unit will be the 3rd one rented so it's not affecting me right now but the amendment still concerns me.

Their argument is that buyers of units in buildings with a high percentage of renters have a harder time getting mortgages on the units. I looked up FHA requirements and from what I can tell the FHA only requires that 50% or more of the units be owner occupied. Do conventional loans have a lower requirement? Thanks.

Last edited by christos99; 04-23-2010 at 07:45 AM..
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Old 04-23-2010, 09:10 AM
7,433 posts, read 16,992,906 times
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Yes, conventional loans currently allow for 30% investor concentration.

Your HOA is very wise. I have seen countless associations shoot themselves in the foot and not have any regulations regarding the number of rentals allowed.
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Old 04-23-2010, 09:19 AM
Location: Saint Charles, IL
3 posts, read 72,224 times
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Is that 30% set in stone or is it waived at a certain LTV ratio? Does that mean at 50%+ FHA is the only option for buyers and higher investor concentration would be cash only or maybe a hard money lender?
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Old 04-24-2010, 11:49 AM
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FHA is set in stone, and as far as I know, so is the 30%. Fannie Mae did at one time have waivers but not for the percentages, and then you had to replace one like unit for the other so not to change the occupancy ratios. ie, you couldn't replace a owner occupied unit with an investor unit for the transaction covered in the waiver.
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Old 06-01-2010, 11:02 PM
Location: Berry Hill, 100 Oaks
20 posts, read 83,509 times
Reputation: 18
The FHA and Fannie Mae ratios have changed over time and can vary depending on current legislation. Right now: 50% for FHA and 30% for FNMA. There are other considerations too: concentration of FHA loans in the development, 10% max controlling interest per individual, percentage of dues in arrears, sufficient HOA reserves, etc.

I would encourage you to get on board with the HOA changes. I counsel my buyers to avoid developments where the rental percentages are allowed to go over 30%.

It should be noted that some townhome developments might be exempt from the rules if they are deeded as PUD or horizontal property regimes as opposed to "condos".

Also, a purchaser could always pay cash in a transaction or get a "portfolio" loan if the development doesn't conform - but I would think that you'd take a substantial hit on value.
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Old 12-09-2010, 08:13 AM
1 posts, read 33,511 times
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This is a very interesting topic. Can you please provide info on where I can research further? Specifically FNMA 30%.

Thank you.
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Old 12-09-2010, 10:44 AM
Location: Laguna Niguel, CA
768 posts, read 3,909,260 times
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For existing condo projects, at https://www.efanniemae.com/sf/guides.../2008/0834.pdf it references just 51% owner occupancy is required... but only if the subject mortgage is being done as an investment property. If the subject mortgage is owner occupied or a second home, there are no owner occupancy requirements to my knowledge.

Clarification of Owner-Occupancy Ratio Requirements
Fannie Mae requires that established condominium projects consisting of attached units have an owner-occupancy ratio of at least 51 percent at the time the loan is originated (purchase or refinance) if the mortgage loan being delivered is secured by an investment property. Established projects where borrowers will occupy the unit or use the unit as a second home are not subject to any owner-occupancy ratios.

Due to current market conditions, many condominium projects are experiencing higher numbers of financial institution- owned REO units, which many lenders may be counting as non-owner-occupied under Fannie Mae’s current requirements. Fannie Mae is clarifying its condominium project owner-occupancy ratio policy to include REO units that are for sale (not rented) as owner-occupied units in the owner-occupancy ratio.

Projects where a borrower is an investor and the project does not meet the owneroccupied ratio of 51 percent will only be eligible if the lender submits the project to Fannie Mae for review under PERS and the project is approved or as a single-loan project eligibility waiver and Fannie Mae approves the waiver based on its review of the overall risk of the project.

Freddie Mac also has similar owner occupancy requirements found at http://www.freddiemac.com/sell/facts...eviews_597.pdf

Owner Occupancy Requirements
• If borrower occupies unit as a primary residence or second home, no owner-occupancy requirement for the Condominium Project.
• If used as an investment property: At least 51 percent of the total number of condominium units must have been conveyed to purchasers (other than the developer or a successor to the developer) who occupy their unit as a primary residence or second home.
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Old 12-13-2010, 04:14 PM
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Loan officers do not have access to the "condo manager" in DU (at least I don't). That is where the underwriter keys in the condo's information and the system spits out a max LTV. It doesn't matter anyway, the mortgage insurance companies have all but abandoned condos, unless there is 10% down. Maybe others have found different in their areas, but the minimum down is 10% if I am going to get MI.
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Old 01-08-2011, 11:08 AM
1 posts, read 33,153 times
Reputation: 11
I have just bought a single family house that's in a gated community for investment. After the close I found out that the HOA imposed a no renting rule on new owner few years back. The disclosure was given to the title company and the title company didn't transfer that information to us. The rule was an amendment to the original one which allowed rental to take place. The houses bought before the amendment date are grandfathered and allowed to rent within certain percentage limit. Their reasoning are:

"The HOA wants to ensure that units within the association continue to qualify for conventional mortgage financing and
that current and future Association members can continue to obtain said financing. The HOA seeks to maximize the number of Units within the Association that are Owner occupied. In Order to accomplish the above goal, the HOA imposes the following rental
restriction: Subject to the waiver exceptions set forth in subsection ... , below, at all times, there will no leased Units within the complex."

My buyer agent and an experienced broker that I talked to have not heard of this type of owner occupied pertcentage requirement imposed on single family house. My questions are:

1) Is that a legal practice for a lender to impose restriction for conventional loan based on owner occupied percentage on a gated single family house community? Shouldn't it be condominium only?
2) Is that a legal practice for the HOA to restrict rental by date of purchase and not by date of queue to rent? Afterall every house in the community has to pay the same monthly fee.
3) Whose fault was it if there are multiple copies of CC&R and the title company received the latest CC&R one week before the close but failed to deliver to the buyer's agent?
4) How to convince the HOA board to get rid of the restriction? The restriction is actually causing house price within the gated community to depress.

I have done some remodeling on the house before finding out about the restriction. It is too late to try to ask for a refund. I appreciate any help or suggestion on what to do next from the experts here.
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Old 01-08-2011, 02:27 PM
7,433 posts, read 16,992,906 times
Reputation: 7762
You need to see legal advice, no ifs and or buts, unless you can move.

Did you ever sign anything saying you received the HOA documents? Many states require that you see the documents 10 days after signing the contract.

Did you take out title insurance? If the documents were never provided to you and you did not waive your right to them (not sure you can even do that), it's my opinion, you may have a legal case.

If the HOA regulations were set up from the beginning, they can do whatever they like. They can require homeowners to have purple shutters and green exterior lights. But when there is what is called an annexation of a rule or a lot, that's where it gets harry. (We took on our HOA and won, the docs were not annexed correctly).

Go see an attorney. Be prepared, you may just have to finish up w/ your improvements and sell the house

There are no such things as a refund in real estate.
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