Let’s Get Small Condo Projects

San Francisco is known for its majestic Victorian and Edwardian homes, and residents and homebuyers in the city know that sometimes these massive dwellings get converted into condominiums. Not one’s traditional idea of a condo project, what was once a majestic single family home is metamorphosed into a multi-level condominium project with three separate living units, for example. But small condo projects, typically defined as two to four units, can also be other than a colorful structure in the City by the Bay. In fact, we encounter them throughout California.

Financing a condominium unit in a small project can be a challenge in some cases, especially where a jumbo mortgage is required. Lenders always review the attributes of a condo project when they finance one, and their methods for doing so take into consideration the fact that with a smaller number of units, the typical ratios they use to assess risk can get out of whack quickly. For example, if a condo project has 10 units and one of them is rented out, the project has a 10% “off site address” ratio. But put one rental unit in a two unit complex and now you have a non-owner occupancy ratio of 50%. Big difference.

Fannie Mae and Freddie Mac, the government sponsored entities that set the foundational rules for much of residential lending, specifically “carve out” small projects and treat them different in some ways that are sensible and helpful. But when we get into jumbo territory — that is, loan amounts above the conforming loan limits — each investor could potentially have its own set of rules and risk tolerances. If you are looking to get a mortgage on a unit in a small project and you encounter challenges, know that we will address these not-so-uncommon scenarios that have up till now proved extremely difficult:

  • Percentage of rental units.  We will now permit 100% of a small complex to be non-owner occupied.
  • Single owner concentration. We’ll allow one individual to own all of the units in a small complex.
  • Pre-sale requirements. We’re OK being the first lender to close a transaction in a new construction or condo conversion (from a TIC, for example).
  • Lender concentration. We’ll finance all of the units in a small project.
  • No master insurance policy? So long as permitted by the CC&Rs, we’ll allow individual owners to obtain their own hazard insurance policies.

Small condo projects can afford a unique combination of traits to the owner or buyer. Often, the purchase price is lower than that of a single family dwelling in the same area but because of low number of units in the project, there isn’t a “condo feel” to living there. It can be a best of both worlds situation. And even though small projects have traditionally presented some stumbling blocks with respect to financing, today’s California buyer who needs a great jumbo loan has a pathway to terms consistent with traditional condo projects and single family residences.  And if you don’t believe a word I’m saying, well then….



Robert J. Spinosa

Vice President of Mortgage Lending

Guaranteed Rate

NMLS: 22343

Cell/Text: 415-367-5959 Fax: 415-366-1590


Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960

Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.

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