FHA condo approval rules ease
October 12th, 2012
Related FHA Stories
- FHA Delays New Condominium Requirements
- FHA: New Rules Desgined to Boost Condo Markets
- HUD Ends Effort To Collect Condo & HOA Fees
- Condos that HOAs miss FHA deadline lose FHA approval
- Should Lenders Escrow Condo Dues and HOA Fees?
Condominium owners know that lenders must review both their own credit qualifications for a mortgage as well as the qualifications of the condominium association. During the housing downturn, this dual qualification contributed to condo values tumbling farther and faster in many markets compared to single family homes. Some condo associations suffered as well when owners fell behind on their dues and reserve funds shrank. In response, the Federal Housing Administration (FHA) and most lenders made it more difficult to qualify for a condo loan.
Lower down payments for buyers, lower home equity for refinancing homeowners and lower credit score requirements are the appealing parts of FHA loan guidelines for condo owners; but unless a condo development is also on the FHA approved list, an FHA-insured loan cannot be approved. FHA guidelines used to allow for a spot approval, which meant that individual borrowers could request an FHA loan even for a development that wasn’t on the list, but spot approvals are not permitted by current FHA guidelines. There is a review process that associations and lenders can pursue to see if the development can be added to the list, however.
On September 13, 2012, the FHA changed some of its rules to help more condo developments become eligible for FHA loans, but many of the existing FHA mortgage requirements remain intact.
One big issue many condo associations face is delinquent dues. As it stands, eligibility for FHA loans is denied if more than 15 percent of the condo’s owners are delinquent on their dues. But new FHA rules define delinquency as condo fees that are 60 days past due rather than 30 days past due, and this could make more developments eligible for the loans.
Even if a building is on the FHA approved condominium list, if more than 15 percent of homeowners are 60 days or more past due on their fees, a new FHA mortgage cannot be approved for anyone regardless of whether they are buying or refinancing.
Owner-occupants and investors
Another issue particularly relevant to new condo developments is how many units are owned by investors. In order to be approved by an FHA lender, at least 50 percent of the units must be owner-occupied. The rules have eased a bit on investors, with one or more investors now allowed to own up to 50 percent of the total units. In the past, a single investor could only own 10 percent of the homes. For new condominium communities, the units owned by the developer will no longer count as investor-owned properties.
Your lender can check any development to find out if it’s on the list of approved communities for FHA loans.
Michele Lerner, author of “HOMEBUYING: Tough Times, First Time, Any Time,” has been writing about personal finance and real estate for more than two decades for a variety of publications and websites including Investopedia, Insurance.com, HSH.com, SavingsAccount.com, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, NAREIT’s REIT magazine and numerous Realtor associations.
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