The “investor ratio” for a condominium development is simply the number of units in the development that are currently “non-owner occupied” (i.e. rented out) divided by the total number of units in the development, expressed as a percentage; if a condo development has 200 units, of which 40 are rented out and the remaining 160 are owner-occupied (as either a primary residence or a second home), then the investor ratio would be 20% (40 divided by 200).

For conventional mortgages that fall under Fannie Mae and Freddie Mac guidelines, loans generally cannot be made on condos in developments where the investor ratios are higher than 40%. (Fannie Mae technically no longer has an official maximum investor ratio guideline, but I have never heard of a Fannie Mae loan being approved with a ratio above 40%).

Loans requiring private Mortgage Insurance (MI) are handled much the same way as other conventional mortgages, but all MI companies currently also impose a 30% cap on investor ratios; since MI loans must meet all conventional underwriting guidelines as well as all MI guidelines, that 30% cap supercedes the 40% cap.

Many lenders, moreover, impose their own more-stringent restrictions on conventional mortgages, and usually cap investor ratios in the 20-30% range (with some having caps as low as 15% or even 10%).

The traditional fallback solution for developments with high investor ratios has been to use an FHA loan, as FHA loans allow investor ratios as high as 49%, and most lenders do not impose their own restrictions on the investor ratios for FHA loans. (FHA loans do have slightly higher fees and rates than conventional mortgages, but for many high-investor-ratio developments, they are often the only available mortgages.)

For developments with investor ratios above 49%, other options do exist; the Ethical Homes team can place loans with certain lenders, for example, who can approve loans on properties with investor ratios 60% or higher. Note that these approvals are not guaranteed; they depend on many factors, including the specific condo development as well as the size of the down payment (which needs to be at least 20% of the value of the property), and need to be evaluated on a case-by-case basis.

We strongly advise borrowers to work with their agent and mortgage broker to find out what the investor ratios are for a particular condo unit before submitting an offer on it; if you find yourself needing to put an offer on a property that does have a very high investor ratio, feel free to contact us and we can help you determine whether a loan on that property might be possible.

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