The building is the borrower
On a condo, conventional underwriting reviews the project as well as the buyer. The homeowners association completes a questionnaire, and the answers are checked against agency requirements. Fail any one of them and the loan can’t be sold to Fannie or Freddie, so the lender declines, regardless of how strong you are.
This is why the decline feels so arbitrary. It usually has nothing to do with you.
The usual triggers
Investor concentration, too large a share of units are rentals rather than owner-occupied. Litigation involving the association. Too much of the building’s square footage in commercial use. A single entity, often the developer, holding too many units. Reserves that aren’t adequately funded. Delinquency on HOA dues across the building. And condotel characteristics: a front desk, daily rentals, resort services, features that make an agency treat the property as a hotel.
Each of these is a real risk signal to an agency. None of them says the building is a bad place to own.
Not all litigation is equal
This one deserves separating out. For Fannie and Freddie, litigation is close to a bright-line rule, so the word alone triggers a decline. A portfolio lender can evaluate what the suit actually is: the claim type, the dollar amount, and whether the association has insurance or reserves behind it. A settled slip-and-fall is a different risk than an active structural-defect claim against the developer.
That distinction is often the whole difference between a dead file and a workable one.
How to find out before you’re under contract
Ask for the HOA budget, the reserve study, recent meeting minutes, and the association’s answers on owner-occupancy and any pending litigation or special assessments. Minutes are the most revealing and the least read.
Doing this during due diligence rather than two weeks before closing is the single highest-value thing a condo buyer can do.
What changes with a portfolio lender
Portfolio and non-QM lenders keep these loans rather than selling them to an agency, so they underwrite the building’s actual risk instead of running a checklist. The building type doesn’t disqualify you; it puts the file in a different lane, priced and structured accordingly.
Occupancy still decides the licensing question: owner-occupied is a consumer loan in licensed states only, while an investor-titled purchase is business-purpose and available in nearly every state.