The Federal Housing Administration (FHA) has taken action to modify its regulations in order to make it easier for buyers of condominiums to receive FHA-backed mortgages. FHA-backed mortgages are desirable because, unlike conventional mortgages that typically require a 20% down payment, the FHA-back loans only require a 3.5% down payment.
Prior to the changes, only a small percentage (estimated to be 6.5%) of the condominium developments in the United States were eligible for FHA-backed mortgages. Under the guidelines, potential buyers and existing owners wanting to refinance their units, could not get an FHA loan on a condominium unless the entire development that the condominium is part of has obtained FHA certification.
Under the revised guidelines, which take effect on October 15, 2019, individual condominiums will be eligible on a case-by-case basis if no more than 10% of the units in the complex are FHA insured. For complexes with less than 10 units, no more than two units will be able to have an FHA backed mortgage.
Some of the other provisions in the revised guidelines include:
- Single-unit approvals allowed: FHA will insure up to 10% of mortgages in condominiums without FHA approval provided the condominium is financially stable.
- Project approvals extended: FHA approvals for condominium projects extended from two to three years.
- Re-certification process simplified: Condominium projects seeking re-certification are only required to update new information rather than resubmit all project information.
- Commercial space restrictions eased: Mixed-use condominium projects with up to 45% commercial space will be eligible to apply for approval on FHA-backed mortgages. FHA recognizes the changing nature of mixed-use projects that are prevalent in many urban areas.
- Owner occupancy rates lowered: Condominium projects with owner occupancy rates as low as 35% will be eligible for FHA-backed mortgages, based on the projects financial and operational stability. FHA previously required at least 50% of units in a condominium to be owner-occupied.
- FHA concentration rate increased: FHA will now insure up to 75% of condominium unit mortgages in a condominium project.
It is expected that the changes to the FHAs approval process will be a beneficial change that could help millions of potential condominium buyers achieve home ownership.
The full text of the new FHA regulations can be viewed here: FHA-REVISED-GUIDELINES-2019-17213