Recognizing that condominium ownership is often the most affordable option available to first-time buyers and small families, the Federal Housing Authority (FHA) has revamped and made more accessible its financial qualifications concerning condominium purchases for more entry-level buyers.

Such revamping of FHA condo financial guidelines was needed. With over 8.7M condominium units nationwide, only 17,792 FHA condo loans were originated in the past year, according to the Mortgage Banking Association. And, according to the National Association of REALTORS® (NAR) most recent existing home sales report in July 2019, sales of condominiums and co-ops dropped -6.5% y/y.

In the absence of widely accessible FHA condominium financing due to heavy restrictions imposed in 2009 that allowed, for example, only seven FHA approvals in Miami-Dade County’s 5,683 condominium projects this year, NAR’s president John Smaby said, “This (new) ruling…will help reverse recent declines in condominium sales and ensure the FHA is fulfilling its primary mission to the American people.”

Here is a brief summary of new FHA financing rules for condominiums:

  • Extend FHA certifications from 2-3 years to a 6-month grace period to meet requirements.
    • The intention is to alleviate some cost and time burdens on condo associations that choose to monitor FHA approval.
    • Condo associations may continue submitting updated certification packages rather than submitting full certification packages each and every time.
    • NAR anticipates such changes will prompt more condo properties to apply for FHA eligibility and thus make more affordable housing accessible to more people.
  • Allow for spot approvals (single-unit mortgage approvals) to enable FHA insurance of individual units even when the entire property is not FHA approved.
    • An FHA buyer must be in a building that has at least five units (considered to be a limited concentration of FHA insured units) with at least 50% owner-occupancy and a maximum of 35% commercial space.
  • Secure more flexibility in the ratio of investor to owner-occupancy levels.
    • Currently that ratio requirement is 50% BUT now FHA may approve an owner-occupancy level of 35% for older properties with less than 10% of the units in arrears.
    • Now, individual investors can purchase no more than 10% of units in a property with 20 units and no more than one unit in properties with less than 20 units.

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