New FHA Guidelines Aim to Increase Access To Condo Mortgages
Condominium sales will play a more significant role in the mortgage origination market in the next few years. The Foundation for Community Association Research (FCAR) estimates 40% of the nation’s 27 million community association households are condominiums, accounting for approximately 10% of the nation’s housing stock. However, currently condominium unit mortgages account for fewer than 2% of all FHA-insured mortgages.
The Federal Housing Administration has issued new guidelines aimed at increasing affordable and sustainable condominium ownership by making the approval process for condominium projects easier. Prior to the new guidelines, in order to purchase a condominium with an FHA loan, a buyer had to purchase within an FHA approved condominium community. The revised guidelines allow for a single unit approval process.
The changes become effective October 15, 2019. Below are some of the important changes:
- Single-unit approvals: Approval process for individual condo units to be eligible for FHA financing.
- Commercial condo approvals: Restrictions for mixed-use projects are eased allowing more commercial condominiums to be eligible for FHA financing.
- Extended Approvals: FHA approvals for condominium projects extended from two to three years.
- Streamlined recertification: Condominium projects are only required to update new information instead of a seeking full recertification.
- Occupancy rates lowered: Condominium project owner occupancy rates lowered as low as 35% from 50%.
- Concentration rate increased: FHA will insure up to 75% of condominium unit mortgages in a condo project.
The changes will increase affordable housing to first-time homebuyers just when Millennials are coming into home buying age. John Smaby, the President of the National Association of Realtors, cheered the changes:
“It goes without saying that condominiums are often the most affordable option for first-time homebuyers, small families and those in urban areas. This ruling … will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people.”
Fulfilling that mission is surely to benefit all condo owners.