Some mortgage lenders eschew condominium complexes which have a portion of the complex leased to commercial businesses. For example, in Pacific Beach (San Diego), there is a property with 8 units on top of a 2200 square foot, retail business. Why won't lenders make a loan there?
Both FHA & conventional financing permit a certain amount of the property, to lease commercial space. Fannie Mae allows for 20% of the property to be leased to commercial ventures as does Freddie Mac. FHA allows for up to 25% of the square footage to be leased commercially.
If the commercial space is more than the permitted percentage of the project, or it's being advertised as a condo-tel, or the public liability insurance doesn't cover the commercial spaces that are owned by the HOA, the loan can be funded.
In our Pacific Beach example, each of the eight units is approximately 975 square feet, for a total of 7800 square feet. The retail space is 2200 square feet. The commercial lease is 22% of the toal square footage of the complex. It is not eligibile for Fannie mae or Freddie Mac financing but is eligible for FHA financing.
