FHA Condo Approval Specialist: Can We Cap the Percentage of Investors in Our Condominium?

Can We Cap the Percentage of Investors in Our Condominium?

Can We Cap the Percentage of Investors in Our Condominium?

fha va condo approvalToday I received an inquiry about leasing restrictions, particularly placing a cap on the number/percentage of units that can be leased.  It was unclear to me as to whether she was inquiring about how this applied to an FHA or VA condominium project approval, but I answered it as best I could.

She wrote:

“Dear Eric, I have been trying to pin down in the internet a rental cap restriction of 10 to 30%.  We are now over the 30% cap and found that homeowners are not happy any longer stating that this was an old rule from the past when the crisis of mortgages collapse.

Can you enlighten me about this? I am currently the HOA board president and have not found “facts” about keeping this rule in our rules and CC&Rs.    But the board and management would like to keep it to secure a happy and stable community.  In 2013 we made amendments and our rule of 30% passed from the majority of the homeowners but they say now that is not the case due to the market. That is scaring lenders and investors from buying because they can no longer rent after theCivil Code §4740. Limitation on Rental Restrictions.

What do think would be my best approach and what Q&As or facts can I provide to my homeowners to keep this 30% rental restriction cap without abolishing or removing it.

Can you assist me?

My response to her was:

fha va condo approvalIf you are asking from the perspective of working to obtain an FHA or VA condominium project approval or from Fannie Mae’s standpoint, then I can say this:

1.     FHA allows a maximum investor (tenant) concentration of 50%

2.     The VA has no restriction on the maximum investor concentration

3.     Fannie Mae restricts the maximum investor concentration to 49% EXCEPT in the case of purchase loans for primary residences and second homes.

In addition, FHA and the VA will NOT allow leasing restrictions that impede a unit owner’s right to lease his/her unit.  This includes a requirement to live in the unit for any period of time or one that requires Board (or other third-party) approval of a tenant.

As far as what is allowed per California state law, that is a question for an attorney.  Every state has its own condominium laws and while they are similar in many regards, there are certainly nuances.

When you do contact an attorney who is knowledgeable in the condominium laws of California, you should ask if California state law allows for such capping of rentals and, if so, what is the minimum percentage.

fha va condo approvalIf your CC&Rs are in accordance with the state laws, inquire as to what can be done to uphold the current CC&Rs in order to prevent additional rentals and to enforce these regulations against current investors.  It may be difficult to determine which investors rented after the rental cap was reached.

I hope that this helps you.  Please let me know if you have any further questions.

I am not an attorney and can only speak to what condominium legal language is allowed by FHA, the VA and Fannie Mae.  If you have specific questions about what is allowed by law in your state, you should contact an attorney who specializes in condominium or common interest community law in your state.

I will be happy to answer any questions as they relate to FHA, VA and Fannie Mae condominium project approvals.

For the remainder of the year, ReadySetLoan Condo Team LLC is offering free processing for VA condo approvals for all condominium clients who retain us for an FHA condo approval.  If you have questions about VA or FHA condo approvals, please contact us for a free consultation.


 Q&A image courtesy of Stuart Miles/freedigitalphotos.net

The Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their approvals with FHA and the VA or become recertified with FHA.  We have assisted nearly 200 condominiums and we can help your association.


ReadySetLoan is an active member of the Connecticut and New England chapters of the Community Associations Institute (CAI) and is a frequent contributor to Common Interest Magazine as an expert in FHA/VA condominium project approvals.


Please contact us with any questions regarding FHA or VA condominium project approvals.  You can email me at askeric@readysetloan.com or call me at 404-433-4565. I will be happy to answer any of your questions.


FHA/VA Condo Approval Specialist

404-433-4565 Cell Phone

860-644-3772 Fax Phone

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Comment balloon 15 commentsReadySetLoan Condo Approval Team • June 24 2014 06:09PM


Good question and answers, check the state laws when in regards to condo associations.

Posted by David Popoff, Realtor®,SRS, Green ~ Fairfield County, Ct (DMK Real Estate ) about 6 years ago

Great response to the question Eric.  You are the man.

Posted by Conrad Allen, Webster, Ma, Realtor (Re/Max Professional Associates) about 6 years ago

Many condo owners do not realize the impact investors and vacancies/rentals have on the complex ... and the reserves.  Every board member should be made to understand what a condo questionaire is as part of their position so they can appreciate protecting the value of the units going forward.

Posted by Chris Griffith, Bonita Springs Listing Agent (Downing-Frye Realty, Bonita Springs, FL) about 6 years ago

Capping the # of investor units is very short sighted and hurts ALL of the unit owners in a depressed housing market because owners who need to leave their units for health, education or employment may just leave the VACANT and subject to foreclosure....providing guidelines for renting units is a better alternative

Posted by Wallace S. Gibson, CPM, LandlordWhisperer (Gibson Management Group, Ltd.) about 6 years ago

Eric, As always, you give great explanations on the FHA/VA guidelines on Condos. I am sure this information was very useful to the lady that asked the question. I just closed on another condo, but it was a Cash Deal, and we didn't have to deal with those loan requirements from FHA or VA.

Posted by Jerry Newman, Texas REALTOR, San Antonio Military Relocation (Brown Realty, 210-789-4216,www.JeremiahNewman.com) about 6 years ago

Eric-The back and forth with the person who asked the question really shows the specialized knowledge one needs to be effective in this type transaction. Thanks.

Posted by Wayne Johnson, San Antonio REALTOR, San Antonio Homes For Sale (Coldwell Banker D'Ann Harper REALTORS®) about 6 years ago

Eric, therein lies the problem with clueless people sitting on boards, making decisions that they are not qualified to make. I live in a condo ... so I am speaking from first-hand experience.  You handled the question beautifully. 

Posted by Kathleen Daniels, Probate & Trust Specialist, Probate Real Estate (KD Realty - 408.972.1822) about 6 years ago

Eric, good information.  It is amazing how many HOAs have allowed their FHA approvals to expire.

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) about 6 years ago

This totally came up at our HOA meeting the other day.  Very helpful Eric!

Posted by Kerrie La Guardia, Let it Rain! (ActiveRain, Community Manager) about 6 years ago

Eric that was as good of an answer as could be given to the way the question was asked.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) about 6 years ago

Good morning Eric. Excellent post as usual. One thing I have never understood. How would they ever police a policy of which owner can rent their unit and who can't.

Posted by Joe Petrowsky, Your Mortgage Consultant for Life (Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709) about 6 years ago

I am not qualified to comment on California condo law, David

Conrad - only trying to follow in your footsteps.

I couldn't agree more, Chris.  Unfortunately, many become Board members to push their own agendas.

Wallace - the guidelines for renting can be tricky as certain ones can render a project ineligible for agency/FHA financing

That's great Jerry.  Thank you for your comment!

I'm glad you found value in the content, Wayne

Kathleen - sometimes it's tough to find qualified people to volunteer their time

I'm with you, Bill.  Why would anyone want to limit the number of potential buyers; it can only hurt values.

I'm glad that the information is valuable to you, Kerrie

George - I certainly wasn't going to speak about California law.  I wouldn't feel comfortable talking about CT and I know it the best.  That's what the attorneys are for

Hi Joe - it would be tough to enforce, that's for sure 

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) about 6 years ago

Your too kind.

Posted by Conrad Allen, Webster, Ma, Realtor (Re/Max Professional Associates) about 6 years ago

Eric - our condo association went through the FHA approval process, and we had to amend our bylaws in order to get approved. Our original bylaws that dealt with leasing, reflected a 20% cap AND a premium charged to the owner for renting their unit (25% additional condo fee for year 1, 35% for year 2, 50% for year 3+). We amended the bylaws to reflect a 30% cap and NO premium....this was acceptable to FHA, and we were approved as an FHA-approved condo building.

We are now exploring VA approval, and finding that a cap of any kind is UNACCEPTABLE. Is this true?


Posted by Mike over 5 years ago

Hi Mike - thank you for your comment.  I'm sure that the cap at 20% wasn't an issue; if only one unit were allowed to be leased at any given time, that would be acceptable to FHA.

The VA is far stricter when it comes to a Veteran's ability to lease his/her unit.  This is to protect Veterans in cases where they get deployed.  If they are deployed, not able to work and not able to lease their units, they run the risk of falling behind in the payments and losing their homes.  This is the same rationale behind the VA prohibing minimum lease terms of more than 12 months.  Please contact me via email or by my phone to further discuss this.

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) over 5 years ago