Not long after we posted an answer to a reader’s mortgage conundrum last week, UrbanTurf heard from another reader with a tricky situation. The homeowner is worried about being able to find a buyer for his condo given the renter-heavy nature of his building. We reached out to Tom O’Keefe at Prosperity Mortgage and Matt Rexrode at BB&T for an explanation. See the question and answers below.
I own a condo in a four-unit building. All the other units are rented out right now to long-term tenants. My realtor said I will have a hard time selling my unit because no buyer will be able to get a loan to purchase in the building given its current renter-to-owner ratio. Is this true? Any exceptions out there? Am I just stuck? HELP!
Tom O’Keefe: The number of lenders and banks that will lend in a building with a 75 percent renter-to-owner occupant ratio is very small. Community or local banks that do not sell the loans or underwrite to agency (Fannie Mae/Freddie Mac/FHA) criteria tend not to care as much about the ratio and may be a good source for financing.
The reason behind this policy is that overall, the risk to the lender increases on any investment property. If an owner is in financial trouble they are more likely to fall behind or ‘let go’ of an investment property over their primary home. When the majority of the units in a building are owned by investors, it increases the risk to the lender because the overall financial health of the building (upkeep, insurance, reserves) is dependent on owners making their payments. Therefore, lenders are not as secure with a condo as collateral.
Matt Rexrode: Fannie Mae and Freddie Mac have a requirement that if they buy a loan in a 2-4 unit building, all but one of those units need to be owner occupied as a primary residence or second home. With a 4-unit condo project, the risk is high; if just one unit that’s a primary residence decides to rent out, the percentage swings by 25 percent. This reader will probably have a lot of difficulty selling their home due to the other owners making the choice to rent out their units.
This article originally published at http://dc.urbanturf.com/articles/blog/too_many_renters_can_make_finding_a_buyer_tough/5340
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