Condo Loan – Rental Ratio Non Factor

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Financing a condo has a rep for being challenging.  The most notorious hurdle is how the number of condo units owned by investors impacts the loan.  What if I told you this legendary deterrent is a myth?

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How Many Investors Own Condos Does Not Matter (typically)

Looking to purchase/finance a condo as a primary residence or vacation home?  I have great news!  There is no need to tally how many units are rented out in the condo project.   The concentration of investors in a condo project does NOT matter on primary or second home condo purchases.

However, investors buying a condo and rent it out are not quite as lucky.  When a condo will be a rental property the number of rental units in the condo project DOES MATTER.   Mortgage companies believe when a single condo project has “too many” rental condos the project becomes saturated. The point of saturation is 50% of all condos as rentals.   When more than 50% of the all condos in the project are already rented the lender considers that project saturated.  As a result, they will allow another rental condo to be financed.

However, when you purchase a condo as a primary residence or a vacation home investor concentration does not matter.

What Else Matters When Financing a Condo?

Financing an Arizona condo is different from financing a single family home, townhome or patio home.  Lenders must evaluate a condo project to ensure it meets Condo financing rules.  Condo financing rules are not one size fits all.  For example, FHA, VA, Conventional limited review, Conventional full/cpm review, USDA, Florida Condos, Resort area condos all have different requirements.  However, some common focus points for all condo review types are:

  • HOA lates
  • Master insurance policy coverage
  • Completion of a project
  • Pending litigation
  • Commercial usage space
  • Number of units owned by one entity
  • HOA budget related items

Financing a condo is not as scary as many think.  Instead, buying a condo requires a bit more education.

By Jeremy House


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