Rental Condo Loan Rules Improved (Reserves & Occupancy Ratios)

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Had trouble financing a condo as a rental propertyToo many rental units in the condo project?   HOA Reserves contribution under 10% of HOA revenue?   Both are common issues with financing a rental condo.  Conventional mortgage rule changes eliminated these hurdles in many cases for investors.

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Condo Loan Reserves & Owner Ratio Rules

Commonly, well qualified rental condo buyers are declined based on condo eligibility issues.  Regardless of a buyer’s strengths, condo projects must be eligible for home loan financing.  If not, as a result the buyer’s home loan cannot fund.

Historically, rental condo’s were subject to more stringent condo rules than owner occupied and second home condos.  Prior to key changes, rental condo loans had to pass a “Full Condo Review“.

As a result, items such as HOA’s contribution of reserves, owner occupancy ratios and a host of other issues were hard stops in the rental condo home loan process.  Finally, there is an option to jump over these hurdles!

Reserves & Owner Ratio Rules Removed

No more owner occupied ratio or reserve contribution requirements on investment condo transactions (with 25% down or more).   Finally, Conventional mortgage rules changed making financing a rental condo more attainable.

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As a result, rental condo transactions are only subject to a Limited Condo Review with a 25% or more down payment.  What does this mean for investment condo buyers?  It means when you put 25% down (or more) on an investment condo purchase you skip the hurdles noted above!  In other words:

  • Number of rental condos in the project DOES NOT matter
  • Amount HOA is contributing toward reserves DOES NOT matter
  • HOA delinquency rates DOES NOT matter
  • No Full Condo Questionnaire, budget or legal condo doc review required

In addition, you may save some money.   Due to not needing a full condo doc package (Budget, Questionnaire, Insurance) rental condo buyers skip this cost. Typically, condo buyers pay out of pocket for such documents.

By Jeremy House

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