By: Stephanie Diana Gast- Wilson
Buying a home is one of the biggest and best financial decisions a person can make. Purchasing a home is the fruition of the American Dream. With Condos becoming more and more prevalent for its minimal hassle of maintenance, affordability and availability the investor concentration can not only be a hindrance for buyers looking for a new home but; for those who own investment units in the project. So, here is a list of ways investor concentration affects buyers and what information should be obtained to evaluate if you really want to buy in that project.
As usual the CYOB (Cover Your Own Bum) disclaimer; though investor concentration is one of the many factors that can slow or halt a condo purchase there are other deciding factors to consider. So discuss your options and investment concerns with your loan officer and underwriter.
Now that we have gotten that out of the way A home no matter what property style is an investment no matter what. However, we often when shopping for a home don’t look at a home as such and that’s because, home buying is so personal. However, there are things to consider especially in the investor concentration.
If you are buying a condo or town home as your primary home the investor concentration can affect you in multiple ways down the road. Where the current FNMA guidelines note for primary residents homes if there is an investment concentration over 50% it won’t directly affect the home loan but; it may affect you in other ways. Such as a project with 50% or higher investment concentration can trigger the underwriter to investigate a unit as a potential condotel which may require additional documentation to be acquired. And many times that additional documentation is charged to the borrower so those costs need to be considered as well. Although if you are doing an FHA loan forget about it the project won’t be or obtain FHA approval if there is an investor concentration above 50%.
Although most of us do not ask why a project has a high investor concentration? Is it in a primarily vacation destination? Is the fact that there are a lot of rental units because, owners convert them to investor units to get away from the renters? The old rule of thumb is to drive by a home periodically at night to see if the project is loud mismanaged is still a good rule to follow. Remember condos are like any other neighborhood so research is needed.
An investor should also check with the HOA or HOA management company to see if they are tracking how many units are rentals or if they are providing only how many are off site mailing addresses to lenders. This can seriously halt or kill a loan. If the HOA management company is only recording how many off site mailing addresses are on the property the lender can’t determine investor units to 2nd home loans. All of FNMA and Freddie Mac’s rules for second home and investor concentration are pinned on knowing this information. Also if the CC&R, Condo Declarations or master deed, state the HOA is to collect and track rentals this tells lenders that they are not managed properly and sends the wrong message for investors.
No matter if you plan to or have to convert your unit into an investment unit having the option is a great thing to have. So, if you have to refi, and there is a high investor concentration this could kill your loan in its tracks.
So, regardless of what the occupancy status you plan to have as an investor in a condo unit work with your loan officer, and underwriter to touch base with the HOA early on to both save time and money. Remember a home purchase is an investment and thinking with your head and heart along with a lot of research will help ensure that it remains a great investment for years to come.
Did this article help you? If it did or you just found it interesting share through social media. Also feel free to subscribe to “Condo Land”, blog.