Rental concentration and project financing

Why lenders track who owns the units

Fannie Mae, Freddie Mac, and FHA each maintain rules about how a project's ownership splits between people who live there and investors who rent it out. Fannie Mae's current Selling Guide treats a single entity owning more than roughly 20 percent of total units in larger projects as a hard reason to deny warranting a mortgage there, and FHA applies a similar cap on how much of a smaller project one investor can hold. These figures are published in guide bulletins and mortgagee letters that change over time, so confirm the current number with a lender or the published guide before quoting a specific percentage to your board.

The owner-occupancy presale test

New and newly converted projects face a second test: enough units must already be sold, or under contract, to buyers who will actually live there, not investors. Fannie Mae and Freddie Mac both apply a threshold before a new project qualifies for their financing at all.

"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

FHA runs a version of the same test but gives itself room to move: HUD can approve a lower owner-occupancy ratio for older, financially healthy projects, within a range it sets itself.

"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

Why condo hotels get excluded outright

Freddie Mac will not purchase a mortgage secured by a unit in what it treats as a condominium hotel or other transient-housing project, regardless of the ownership percentages above. This is a separate, absolute exclusion, not a numeric threshold, and it is why many declarations separately define and prohibit hotel-like or transient rental use even in communities that otherwise permit leasing.

A lender rule is not a law, but it still binds your community

None of these figures are state or federal law, and a lender's rule cannot force your association to adopt a cap. But once your community crosses a threshold, buyers there may only qualify for cash purchases or higher-cost portfolio loans, which depresses resale value for every owner, not just the ones renting units out. That practical consequence, not a statute, is usually why boards facing no legal requirement for a rental cap adopt one anyway.