For most conventional mortgages, a condo project needs at least 50% of its units occupied by owners or second-home users before a lender will finance a unit inside it, but the condo owner-occupancy ratio for a mortgage only kicks in under specific conditions. Fannie Mae applies the 50% floor to investment-property purchases in established projects, FHA sets 50% as its default (with a 35% exception), Freddie Mac has eliminated the requirement for established projects, and the VA uses project approval rather than a published percentage. Which rule governs your loan depends on who’s buying the mortgage, how you plan to use the unit, and whether the building is new or established.
Fannie Mae: 50% Applies Only to Investment Purchases
Fannie Mae’s 50% owner-occupancy rule is narrower than most buyers assume. For an established condo project under a full review, the requirement that at least 50% of units be owned by people living there or using them as second homes applies only when the borrower is purchasing the unit as an investment property. If you’re buying the condo as your primary residence or a second home, Fannie Mae does not impose a project owner-occupancy minimum.1Fannie Mae. Fannie Mae Selling Guide – B4-2.2-02, Full Review Process
New and newly converted projects have their own presale rule. At least 50% of total units must have been sold or be under contract to principal residence or second home buyers before Fannie Mae will back a loan in the project. For projects built in legal phases, the 50% is calculated across the subject phase and all prior phases combined.2Fannie Mae. Full Review – Additional Eligibility Requirements for Units in New and Newly Converted Condo Projects
Fannie Mae also offers a limited review that skips the deep look at occupancy and association finances, but it caps your loan-to-value. A principal residence can borrow up to 90% of the unit’s value. Second homes and investment properties are capped at 75%. Above those thresholds, the lender has to run a full review instead.3Fannie Mae. Fannie Mae Selling Guide – B4-2.2-01, Limited Review Process
Freddie Mac Has Dropped the Ratio for Established Projects
Freddie Mac has retired its 50% owner-occupancy requirement for established condo projects entirely. Lenders selling loans to Freddie Mac no longer need to verify occupancy ratios for units in existing buildings, and the owner-occupancy project waiver request category has also been eliminated.4Freddie Mac. Condominium Unit Mortgage FAQ
This matters most for investors. If you’re buying a rental unit in an established building where fewer than half the owners live on-site, a lender working with Freddie Mac guidelines may approve the loan even when Fannie Mae’s investment-property rule would block it. New projects still have to meet Freddie Mac’s presale and owner-occupancy standards, so the relaxation only helps in established developments.4Freddie Mac. Condominium Unit Mortgage FAQ
FHA Sets 50%, With a 35% Carve-Out
FHA follows a different framework under 24 CFR 203.43b, which authorizes HUD to set the minimum owner-occupancy percentage anywhere within a 30% to 75% range.5eCFR. 24 CFR 203.43b – Eligibility of Mortgages on Single-Family Condominium Units In practice, HUD has set the standard at 50% for most existing projects. Proposed projects, those under construction, and existing projects less than a year old carry a 30% owner-occupancy floor.
FHA allows a reduced 35% threshold for established developments older than 12 months, but only if four conditions are met: the application goes through HUD’s Review and Approval Process, the association’s budget allocates at least 20% to replacement reserves for capital expenditures and deferred maintenance, no more than 10% of units are over 60 days delinquent on association fees, and three years of acceptable financial documents are provided.6U.S. Department of Housing and Urban Development. FHA To Lower Owner-Occupancy Requirement for Condominiums
VA Loans: Project Approval Instead of a Published Ratio
For a VA loan, the condo project itself must be on VA’s approved list before a lender will guarantee the mortgage.7U.S. Department of Veterans Affairs. LGY Condo Approval for Lenders The VA evaluates the project’s governing documents, financial health, and insurance coverage. It does not publish a specific owner-occupancy percentage the way Fannie Mae and FHA do, but projects with very high investor concentrations are unlikely to pass review. If the condo isn’t already VA-approved, the lender can submit it, which adds time to closing.
How “Owner-Occupied” Gets Counted
How lenders count the units is as important as the percentage itself, because the math isn’t always intuitive.
- Units where the owner lives full-time count as owner-occupied.
- Second homes used personally by the owner as a vacation or seasonal residence count as owner-occupied too, even without year-round occupancy. What matters is that the unit isn’t held solely to generate rental income.
- A unit counts as sold once a binding purchase agreement is signed with a buyer who intends to occupy the home, even before the deed transfers. This matters most for new projects trying to hit presale thresholds.
- Units the developer still owns and is marketing for sale are excluded from the owner-occupied count until a private buyer closes.
- Management offices, commercial storefronts, and other non-residential areas are excluded from the calculation entirely.
The practical effect: a 100-unit building with 45 owner-occupants, 5 second-home owners, 40 renter-occupied investor units, and 10 developer-held units calculates as 50 owner-occupied out of 90 countable units, or about 56%. The ten developer units drop out of the denominator, pulling the ratio above the 50% line.
Other Project Factors That Can Still Disqualify a Building
A project can hit the owner-occupancy number and still fail the lender’s review on other grounds. These aren’t part of the ratio, but they decide whether the loan actually closes.
Fannie Mae will not back loans in projects where more than 35% of the total square footage is commercial or mixed-use space, counting commercial areas above and below grade (though commercial parking can be excluded).8Fannie Mae. Fannie Mae Selling Guide – B4-2.1-03, Ineligible Projects FHA applies the same 35% floor-area cap.9U.S. Department of Housing and Urban Development. FHA Issues New Condominium Approval Rule
Fannie Mae also considers a project ineligible if more than 15% of unit owners are 60 or more days delinquent on common expense assessments. Regular monthly dues and special assessments are calculated separately rather than combined, and each special assessment is evaluated on its own.10Fannie Mae. Project Standards Requirements FAQs
The association’s annual budget must allocate at least 10% of total assessment income to a replacement reserve fund. Lenders verify this by dividing the annual reserve allocation by the budgeted assessment income.1Fannie Mae. Fannie Mae Selling Guide – B4-2.2-02, Full Review Process
Pending litigation against the HOA generally disqualifies a project, as does pre-litigation activity like mediation that’s reasonably expected to become a lawsuit. Litigation involving the developer around safety or structural soundness also disqualifies the project. Narrow exceptions exist for minor matters: neighbor disputes, cases fully covered by the association’s insurance, and actions where the association is the plaintiff collecting unpaid dues. Construction defect litigation isn’t treated as minor unless the defects have already been repaired and the association is just seeking reimbursement.8Fannie Mae. Fannie Mae Selling Guide – B4-2.1-03, Ineligible Projects
What to Do If the Building Falls Short
Finding the right unit in a building that doesn’t qualify doesn’t automatically end the deal. The options cost more than a conventional mortgage, but they exist.
- Ask your lender whether it can sell to Freddie Mac rather than Fannie Mae. Because Freddie Mac has dropped the 50% requirement for established projects, a loan that fails on the Fannie Mae side may clear on the Freddie Mac side if the building’s reserves, delinquency, and insurance check out.
- Request a limited review. A primary residence purchase at 90% LTV or below qualifies; second homes and investment properties qualify at 75% LTV or below. The limited review skips the detailed occupancy analysis.3Fannie Mae. Fannie Mae Selling Guide – B4-2.2-01, Limited Review Process
- Look at portfolio and non-QM lenders. They keep loans on their own books and set their own rules. Expect down payments of 20% to 30%, higher interest rates, steeper closing costs, and credit score minimums that often reach the mid-700s. Some specialize in non-warrantable condos and offer competitive terms within that niche.
- Work with the association. If the project is close to the thresholds, the HOA may be able to restrict future rentals through a bylaw amendment, build up reserves, resolve pending litigation, or collect on delinquent dues. These changes take time, but they can move a building into warrantable territory.
- Order the condo project questionnaire early. Discovering a non-warrantable status two weeks before closing wastes everyone’s time; pulling it during the initial due diligence period lets you adjust the financing strategy or walk away before you’re committed.
Rules vary by lender and loan program, so a project rejected by one bank may be approved by another working under different agency guidelines. The occupancy ratio is the most visible hurdle, but eligibility turns on the full picture: reserves, delinquency, commercial space, insurance, and litigation all matter. Knowing where the project stands on each gives you the best shot at finding a lender willing to close the deal.