What Say You About the Ability (or Not) to Get Financing of Unit in A High Rental Percentage HOA Property?

Hello out there lenders. I need feedback. A reader send me an email after reading the article on my website about Lease Limitation Restrictions (are they legal in California). She questions my assertions that the lending pool shrinks when the owner occupancy ratio sinks, because of the secondary mortgage market guidelines limit or restrict purchase of loans in high rental percentage developments.


I would like feedback. This reader says that Fannie Mae doesn’t pay attention to the owner occupancy ratio of condos when giving loans even if the development is 70% tenant occupied except in purchases by investor owners.


What do you say? Inviting comment.

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2 Responses to What Say You About the Ability (or Not) to Get Financing of Unit in A High Rental Percentage HOA Property?
  1. Courtney Fischer
    October 22, 2015 | 2:27 pm

    Hello Beth,

    I’d like to hear an answer on this!

    My HOA Board was just requested by a homeowner to limit rentals.

    Reasons homeowner gave were 1) most neighborhood problems brought before the Board involve tenants (true), and 2) loan requirements are such that it may be difficult for younger, less affluent buyers to get loans if the rental percentage is “too” high.

    The homeowner proposed either or both of these: 1) require new purchasers to live in condo for one year before it may be used a rental property, and 2) limit the percentage of rentals within the complex of 109 units.

    Background: complex is 109 large units of 3–4 bedrooms & 2-1/2–3 baths, built mid-1960s in a superb school district. There are many long-term residents in a diverse community–young families, retirees, single people. I’m on the Board so must consider requests.

    I am strongly in favor of limiting rentals. Purchases by investors are on the upswing and higher tenancy rates are negatively affecting our sense of long-term community. Also, over the long term, investors are less willing to invest in physical property, and tenants are less likely to engage in ways that build community.

    What’s your take on this? How could we make a legal addendum to out CC&Rs that would limit rentals?

    Any reply would be appreciated.

    Courtney C. Fischer

    • Beth Grimm
      November 15, 2015 | 4:59 am

      Lease limitation restrictions are basically legal if reasonable and consistently applied. However it is my understanding the FHA won’t give certification to condo associations that require the residency requirement before qualifying to lease because this effectively prevents them from having full rights with regard to the property from the day they purchase (paraphrasing). The percentage limitations do not seem to bother FHA.

      Under California law, all owners are effectively grandfathered, or you could alternatively say they are exempt, from any restriction passed in or after 2012 when a law was passed saying that existing rental restrictions remain valid and enforceable but all new ones would be treated differently by exempting all owners who did not sign a written consent to the limitation. Basically this means that the law was not retroactive so it did not disrupt existing restrictions.

      The concerns about high percentage rental developments are common and realistic and are supported by a study done by the State of California in 1985. Old study but still consistent with what I hear from boards in associations with high percentages of rentals.