By Harvey S. Jacobs February 16, 2012
Q: I am relocating to Reston, and am thinking about buying a condominium in the Reston Town Center. All the units in the building are owned, but 46 percent are occupied by renters. Would this be a wise investment?
Barbara
A: Buying a condominium or home governed by a mandatory homeowner’s association with a large portion of non-resident owners has its risks. Fannie Mae, Freddie Mac and the Federal Housing Administration monitor these types of associations and maintain specific guidelines for making loans to units in communities where the majority of the owners are non-residents. If a unit is occupied by a non-owner, the loan is believed to be riskier for two reasons:
First: The borrower is more likely to walk away from a mortgage secured by a rental unit than when secured by the borrower’s primary residence.
Second: If there are too many non-resident owners and they fail to make the condo or homeowner’s association fee payments, the financial stability of the association itself can be jeopardized. Thus, the property managers of these associations are required to periodically complete HUD surveys to report the level of investors (non-resident owners) and delinquencies.
Communities that have too many non-resident owners or too many delinquencies become ineligible for Fannie Mae conforming (or FHA) loans. That reduces the number of buyers; less demand means lower prices and harder-to-sell units in that community. Finally, because owners have a vested long-term interest in their home and community, they tend to maintain their homes in better condition than short-term renters.
Harvey S. Jacobs is a real estate lawyer with Jacobs & Associates Attorneys at Law in Rockville. He is an active real estate investor, developer, landlord, settlement attorney, lender and Realtor. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. Contact Jacobs at (301) 417-4144, jacobs@jacobs-associates.com or ask@thehouselawyer.com.