FHA Loans Increasingly Available to Condo Buyers

by Karen Lawson
November 26th, 2009

FHA loan requirements have been seen as an obstacle to condo buyers and owners wishing to refinance. The New York Times reports that allowing the maximum loan amount for condos in Manhattan and North New Jersey will allow more people to buy condos in those areas. The maximum loan limit of $729,750 will expire after 2010, but real estate professionals and potential buyers are hoping for an extension.

Lender Approval of Home Loans in Non-approved FHA Condominium Complexes Ends January 31, 2010

Perhaps most helpful for those wishing to finance a condo loan is FHA’s temporary waiver of its requirement of approving condominium complexes before FHA loans could be used to finance individual condominium units. FHA guidelines currently allow lenders to make “spot loans” for units in condominium complexes believed by the lender to qualify for approval by FHA. The delegated approval in complexes not yet approved by FHA will end January 31,2010, but may be extended.The approval of condominium complexes by FHA can be a lengthy process that without the spot loan program could effectively delay the sale of individual condominium units to buyers needing FHA mortgage loans.

FHA Guidelines Help Cash-Poor Borrowers Buy Homes in Pricier Markets

FHA’s relatively lenient lending policies are useful for those who have the income and credit for getting a mortgage, but don’t have enough funds for down payments and closing costs. It’s also possible to qualify for an FHA home loan with less than stellar credit. This can help young professionals and others with limited cash qualify for affordable home loans. The combined benefits of low mortgage rates and FHA guidelines may benefit buyers who could not otherwise buy homes in high-cost areas.

Properties in certain areas are typically priced beyond accessibility to first-time buyers; they don’t have the benefit of cash from the sale of another home, and cannot make a 20% down payment on market-priced homes. FHA could further assist these buyers by continuing to allow maximum loan limits to apply to condominium units in high-priced areas. Extending the spot-loan program for units in complexes not yet approved by FHA would facilitate more condo sales and purchases, and help preserve and possibly increase home values in complexes awaiting formal FHA approval.

FHA Plays Vital Role in US Housing Market

As credit has become more difficult to get, and sub-prime lenders have closed up shop, FHA has increased its market share of 1-4 family loans to about 25%. If FHA, the housing branch of the US Department of Housing and Urban Development, stops making loans, or significantly restricts its loan requirements, many buyers will be lost to the housing market. FHA’s primary task is balancing its responsibility to taxpayers with its mission of providing affordable housing to low and moderate income families.

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