Changes to FHA financing qualifications will bring more entry-level homes to the market, helping to meet buyer demand.
After reviewing the Department of Housing and Urban Development’s new condominium financing rules, says the guidance affords property owners greater flexibility in the qualification process for loans insured by the Federal Housing Administration. Lenders will be able to issue FHA loans for single condo units, and buildings with a greater number of investor-owned units or greater percentage of commercial space can qualify for FHA financing, among other changes HUD released Wednesday. We expect the new rules, which will go into effect Oct. 15, to revive a condo market that has been stifled since the Great Recession.
The new condo rules, which will help more would-be buyers access affordable housing, satisfy many of the changes the association has backed for more than a decade. Specifically, the new rules will:
Extend FHA certifications on condo developments from two years to three years, with an additional six-month grace period to meet requirements. This will alleviate some of the cost and time burdens on condominium associations that intend to maintain FHA approval. Condo associations also may continue submitting updated recertification packages, rather than the full certification package each time. I expect the change to prompt more condominium properties to apply for FHA eligibility, making more affordable housing more accessible.
Allow for single-unit mortgage approvals—often known as spot approvals—that will enable FHA insurance of individual condo units, even if the entire property does not have FHA approval. The condo building in which the FHA buyer wants to purchase must meet certain requirements: The property must have at least five units, a limited concentration of FHA-insured units, at least 50% owner-occupancy, and a maximum of 35% commercial space.
Secure additional flexibility in the ratio of investors to owner-occupants allowed for FHA financing in a condo building. While the current owner-occupancy requirement is 50%, HUD may approve an owner-occupancy level as low as 35% for older properties with less than 10% of units in arrears. Individual investors can purchase no more than 10% of units in a property with more than 20 units and no more than one unit in properties with less than 20 units.
FHA approvals for condos prior to these changes have been heavily restricted. For example, Miami-Dade County, there were 5,683 condo projects—but only seven had FHA approval. NAR sent out an all-member email about the new condo rules Wednesday morning.s.
FHA restricted its condo approval process in 2009, which limited the number of properties that could receive FHA loans. In 2016, it moved to lift several of those restrictions, but the proposed rules were never finalized.