Overview

Condo projects where many units are owned by investors can look riskier to lenders because investor-owned units tend to turn over more, may be rented out, and can affect resale values and HOA income stability. In my 15 years advising borrowers and reviewing condo approvals, I’ve seen that the most common responses from lenders are (1) stricter underwriting, (2) higher required reserves or down payments, or (3) use of alternative products. Authoritative guidance from agencies and agencies’ sellers (Fannie Mae, Freddie Mac) and federal programs (FHA, VA) informs most lender policy updates through 2025 (see Fannie Mae and HUD links below).

Common mortgage options

  • Conventional loans (Fannie Mae / Freddie Mac): Many conventional programs prefer higher owner‑occupancy rates — commonly sought at or above roughly 50% owner occupancy — and may impose investor‑concentration limits or require project approval. Exceptions exist but usually require strong HOA finances, low delinquency, and adequate reserves (see Fannie Mae Selling Guide: fanniemae.com).

  • FHA loans: FHA has its condo approval process and, in some cases, can be more flexible on owner‑occupancy than conventional lenders. FHA loans require mortgage insurance and FHA project eligibility or single‑unit approval where allowed (see HUD/FHA: hud.gov).

  • VA loans: Eligible veterans can use VA loans for condominium units on the VA’s approved condo list; VA also evaluates project stability and may be flexible in certain circumstances (see VA guidance at benefits.va.gov).

  • Portfolio loans / community banks: Local banks, credit unions, and portfolio lenders hold loans in‑house and can set flexible criteria for high‑investor projects. They often underwrite on the borrower’s overall risk rather than strict project thresholds. In my practice, portfolio lenders frequently help buyers who can’t meet conventional condo project rules.

  • Alternative structures: Seller financing, co‑op conversion (rare), or loans structured around owner‑occupied units in the same building may be workable where standard products fail.

What lenders review (short checklist)

  • Owner‑occupancy percentage and investor concentration
  • HOA financials: budget, reserve study, delinquency rate, special assessments
  • Insurance requirements and claims history
  • Number of units rented short‑term (Airbnb/short‑term rentals can be a red flag)
  • Owner‑occupancy or rental restrictions in the CC&Rs
  • Reserve fund levels and source of operating income

Documentation lenders commonly request

  • HOA financial statements and budget (most recent year and current month)
  • HOA meeting minutes mentioning special assessments or litigation
  • Reserve study or statements on capital projects
  • Rent roll (if many units produce rental income)
  • Evidence of borrower down payment, reserves, and credit profile

Practical strategies to improve approval odds

  1. Target lender-friendly buildings: Look for projects with solid HOA financials, low delinquencies, and clear rules against excessive short‑term rentals.
  2. Consider FHA/VA or portfolio lenders early: If the condo appears investor‑heavy, speak with lenders who specialize in non‑standard condo approvals.
  3. Increase your down payment or provide documented reserves: Larger borrower equity reduces lender risk and can overcome project issues.
  4. Work with the HOA: Request updated financials, confirm reserve studies, and ask the HOA to address known deficiencies. A well‑managed HOA is often the single biggest factor in getting project approval.
  5. Ask about lender overlays: Some lenders add stricter rules on top of agency guidelines. Always ask for the underwriting checklist upfront.

Real‑world example

A buyer I advised wanted a unit in a 120‑unit building where roughly 65% of units were investor‑owned. Conventional financing flagged the development as ineligible under one lender’s overlay. We engaged a community bank offering portfolio loans and obtained approval with a 20% down payment plus documented reserves for the HOA. The bank focused on the borrower’s credit and the HOA’s most recent budget rather than strict investor concentration limits.

When to expect limitations

  • Newly converted condos, projects with high delinquency rates, or buildings that allow widespread short‑term rentals are more likely to be restricted.
  • Some agency programs will not accept projects with significant non‑owner occupancy or concentration of investor ownership without additional documentation or remedies.

Key resources (authoritative)

Internal links

Frequently asked questions

Q: Can I still get an FHA or VA loan in a high‑investor condo?
A: Possibly. FHA and VA have condo approval paths that can be more forgiving than some conventional overlays, but they still require project or unit-level eligibility and proof of sound HOA finances.

Q: Will a higher down payment solve the problem?
A: A larger down payment or additional reserves often helps and can make portfolio lenders more willing to approve, but it doesn’t guarantee eligibility if the HOA has structural or legal issues.

Q: Should I rely on lender promises before closing?
A: Get approvals in writing. Lender overlays change, and verbal prequalifications are not binding.

Professional disclaimer

This article is for educational purposes and does not replace personalized mortgage advice. Lender policies and agency guidelines change; consult a licensed mortgage professional and review the most current guidance from FHA, VA, Fannie Mae, and Freddie Mac for decisions affecting your financing.