New Owner-Occupancy Guidelines Make More Condo Investments Available

New Owner-Occupancy Guidelines Make More Condo Investments Available

Investing in condos can be enticing. When done right, it can also be rewarding and profitable.

Condos have certain advantages to property investors. First of all, they are usually priced less than typical homes. This creates an entry point for many new investors. Second, maintenance is often less costly and less of a hassle, largely because the homeowners’ association handles these tasks.

However, getting a loan to invest in a condo can be difficult for certain locations. In many cases, it all hinges on an important statistic: the owner occupancy percentage.

What To Know About Investment Property Condos with Occupancy Under 50%

Understand the Goals of Ownership

To understand why ownership levels are an issue, you need to think about the specific goals for owning an investment property condo in the first place. Think about the traditional homeowner. What’s their goal for the property? In many cases, the goal is to simply have an affordable house with enough space for their family and vehicles. The goal, in many cases, is a happy, comfortable life, along with financial stability and protection.

The goal of owning an investment condo is much different. In this case, the goal of a owning the property is to make a profit. The goal is to take some of your money (or the bank’s) and invest it in a condo building, then sell or lease these units and create a high-quality income. The goal is income, which is starkly different than the goal of traditional homeownership.

This creates the issue, however. Because investment condo purchases are essentially a business venture, and not a personal investment, there is a higher rate of foreclosure on the property. For this reason, the banks, guided by the FHA, have specific procedures for lending money on these types of purchases.

Owner Occupancy Defined

It might seem silly that we need to define as obvious a term as “owner occupancy,” but in real estate, the details matter and even a simple term like “occupancy” can be foggy. Units that are principle or secondary residences, or have been sold for this purpose, are defined as owner occupied. Principle residence is the place where the owner typically stays during the majority of the year, while secondary refers to a place where the owner stays for less than the majority of the year. However, a secondary residence does not include a vacation home.

Why are there Condo Owner Occupancy Requirements in the First Place?

Now is the time to look at the loan from a lender’s perspective. Let’s say you are a lending officer working for a bank that makes many different types of loans, including loans on condo investments. A nice man named Mr. Smith comes to your office and describes his plan for investing in two condominium sites with the goal of either selling or leasing the properties at a profit. He needs two different loans to finance the purchases. Once Mr. Smith has the loans, he can purchase the properties and start selling the units to generate an income. When the units are sold, he’ll have a profit and be able to pay back the loans.

He wants to make investments in two specific condo facilities, which are exactly the same except for one specific stat. The first has an occupancy of 75%, while the second has an occupancy of 20%. Other than that, the two units seem, from the outside looking in, to be exactly alike.

As the lender, you look at the building with 75% occupancy as an opportunity. You look at the building with 20% as a risk.

This is because you, as the lender, are dependent on the borrower to sell the units. However, the building with 20% occupancy must have an issue. After all, why else are only one out of five units being used. It stands to reason that Mr. Smith may have trouble selling these units, which would leave you, the lender, without your money.

Seems like a tough situation, but there are new guidelines from the FHA that open new opportunities when buying condos. These new guidelines can be beneficial for people buying investment condos and buyers who want to purchase or occupy these units.

What Were the Old Guidelines?

First, let’s look at the old lender guidelines for owner occupancy as defined by a 2016 letter from the U.S. Department of Housing and Urban Development. The former requirements (which are outlined under “Existing,” as they had not yet changed when the letter was issued) required at least 50% owner occupancy. At least half the units in the project must be owner-occupied or currently sold to owners who intend to occupy the unit. The previous requirements did, however, say that the occupancy requirements could be lowered to 35% if the project met certain criteria.

What are the New Guidelines?

The new requirements, (which are explained under “Proposed”) allow for a minimum of 30% owner occupancy. They also allow legally-phased project to meet 30% pre-sale and 30% owner occupancy. The goal is to make loans on condo purchases available to more potential buyers.

How to Demonstrate Occupancy

In order to qualify for loans on investment condos, you’ll need to verify the occupancy levels through specific documents. The occupancy can be demonstrated through copies of sales agreements and loan commitments, assuming another lender is willing to make the loans.

You’ll also need to provide evidence that the units have closed real estate processes and are occupied by the owner. If this information is unavailable, you can provide information from a developer or builder listing all the units that have already sold, are under contract, or have closed and will soon be occupied by the owner. If you are getting information from the developer, there are a few different types of documents you can use. Spreadsheets and charts are generally accepted, as are internal listing used for tracking the company’s information. Anything provided directly from the developer, however, must have a signed certification.

Making Condo Investments Possible for More Buyers

Are you looking to purchase an investment condo? Contact San Diego Purchase Loans and take advantage of our common-sense approach to underwriting.

We’ll use every available resource to help you get approved for your investment property. Whether you are a lifetime investor or want to learn more about the advantages of investment property, we will be proud to help!


As a first time home buyer, I wasn’t sure what to really expect, but Chad and his team made the process very clear and easy. Once the process was over, they didn’t just vanish either. They kept in touch and looked for opportunities that may benefit me. A couple years later, they found me a great refinance opportunity that saved me a lot of money! Once again, the process is long and grueling, but Chad and his team made it as painless as could be. Any barrier that I encountered, they found a quick solution to make it happen. Mortgages are a huge commitment and I wouldn’t pick any other team to help me make the right decisions.”

Incredible Turnaround and Stellar Customer Service. Chad and his team helped us get into our first home here in San Diego. When we first started the process we were skeptical it would even be worth applying. But Chad and his team walked us through the whole lending process with integrity and know how that surpassed our expectations. After helping us to pull together our pre-qualification, he and his team stayed at the ready. Before we even walked up to a home we were seriously interested in he had the data we needed over to us and our realtor. After finding the home we wanted to place a bid on, we were able to place a bid with a matter of a few hours. Then, after having our offer accepted, he had our loan package completed and the keys in our hands in under a month — I am pretty sure it was less than. Like I said, incredibly fast and professional turnaround. if you are looking for a motivated lender who can walk you though every detail and have your back every step of the way, Chad and his team at HomePoint Financial is your best decision. Recommend them highly!”

Thank you, Chad. You have been amazingly responsive to all my questions, and you have a great staff assisting you. Thanks so much for all your help!

I hope you enjoyed reading this article. It's my goal to keep you updated with the latest real estate mortgage news. I'm proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for Cross Country Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2019. Got a question for Chad? Call (858) 353-8331 or submit your question online