Investor concentration

Why lenders track who owns the units

Every mortgage sold to Fannie Mae or Freddie Mac, or insured by FHA, on a unit in your community depends on the lender trusting that the project itself is financially healthy, not just the individual buyer. Lenders check how many units are owned by people who actually live there versus units held as rentals or investments. A project where too few owners live on site is treated as riskier, closer to a hotel than a neighborhood.

For new or newly converted condo projects, Fannie Mae requires a minimum share of units to be sold or under contract to buyers who will actually occupy them.

"At least 50% of the total units in the project or legal phase must be under contract for sale to owner-occupant (principal residence) or second-home purchasers."

Source: Selling Guide, B4-2.1-03: Ineligible Projects, Fannie Mae

Freddie Mac applies a comparable presale test for new projects, and separately refuses to buy loans on units in condo-hotel or other transient-housing projects at all, a categorical rule distinct from any percentage threshold.

Two different thresholds, easy to confuse

Boards often mix up two separate Fannie Mae rules that measure different things. The first caps how much of a project one single buyer, often an investor entity, can own: in projects of 21 or more units, one entity owning more than a defined share of the total is a hard ineligibility factor, full stop. Smaller projects have their own lower thresholds.

The second rule is softer and looks at the whole project rather than one buyer. When a very high share of all units are owned as investment or second-home property, Fannie Mae treats that as a red flag that invites closer underwriting, not an automatic bar. A project can fail the first test while easily passing the second, or the reverse.

Exact percentages move as Fannie Mae and Freddie Mac update their published guides, so confirm the current figures with a lender before quoting a number to your owners.

FHA moves the same lever, with its own numbers

FHA-insured loans run on a parallel but separate set of rules. HUD sets a baseline owner-occupancy requirement for FHA-approved projects, with room to approve a lower ratio for older, financially stable buildings.

"The current owner-occupancy requirement is 50 percent... For properties that are over 12 months old with less than 10 percent of their units in arrears, HUD may approve an owner-occupancy level as low as 35 percent."

Source: FHA Condominium Rule Assessment, National Association of Realtors

HUD adjusts these figures by mortgagee letter rather than by statute, so treat any specific percentage as a snapshot, not a permanent rule, and confirm the current number with a lender before relying on it. FHA also limits how much of a project a single investor can own, through its own project-approval rules, separate from the owner-occupancy ratio.

What your board can, and can't, do about it

Investor concentration is a lender rule, not a law your board is required to follow, but it creates real leverage: cross a lender's threshold and buyers in your community may struggle to get a mortgage at all, which can depress resale values association-wide.

Even so, a board usually cannot fix this by simply adopting a cap at its next meeting. Because leasing is treated as a property right, most jurisdictions require restrictions on renting or investor ownership to be written into the declaration itself, through the amendment process, not passed as a standalone board rule. The exact vote threshold and procedure for amending your declaration is set by your own governing documents and your state's statute; check both before assuming your board can act alone.

Industry advocacy groups have taken the position that private, member-approved covenant amendments, not new government mandates, are the right tool for addressing rising investor ownership. That is a policy position, not a legal requirement, but it reflects how most associations that have successfully addressed concentration have actually done it: through a vote, not a memo.