Two Good Reasons for Promoting Owner Occupancy

Many professionals – lawyers, property manager, lenders – encourage co-op and condo boards to promote owner-occupancy of apartments as a way to maintain a high quality of life and robust credit-worthiness. An abundance of subletters, the reasoning goes, hampers a sense of community and makes a building less attractive to lenders.

A shareholder in a seven-unit brownstone co-op reports that one of the units is a rental, and two other shareholders are considering renting out their apartments. The shareholder asks, is it true that banks won’t lend to potential buyers if there are too many rental units in a building? And is there a cap on allowable rentals in New York City? 

Answer: Banks do prefer that boards place a cap on the number of rentals in their building, but the exact number varies from lender to lender, Brick Underground’s experts say. Some loans are available only to buyers who intend to occupy their apartments, rather than rent them out as investment properties. Furthermore, banks expect to see a certain percentage of owner-occupied units in a property in order to loan to prospective buyers. 

For buyers to obtain federally guaranteed mortgages, the building they're purchasing in must be at least 51 percent owner-occupied, and private lenders have their own requirements. "It depends on the bank, and it also depends on the size of the mortgage and whether it’s a co-op or a condo building," says Deanna Kory, a broker with Corcoran. "Many banks want buildings to have 70-percent primary residents. The minimum is 51-percent primary residents.” 

Given that the brownstone in question has only seven units, if three of them were rented out it would still pass the 51 percent mark. But future buyers could run into issues getting loans from certain banks. 

"Typically, we recommend trying to maintain at least an 80-percent owner occupancy, since guidelines are always subject to change," says Brittney Baldwin, vice president and loan officer at National Cooperative Bank (NCB). However, she adds, the rules are not cast in stone: "If a building goes below standard guidelines, there may be portfolio lenders, such as NCB, who can lend in a building with lower owner-occupancy percentages."