In a move lauded by many in the mortgage industry, the Federal Housing Administration (FHA) announced the relaxation of condominium-related requirements, effectively making condos eligible for FHA financing.
The change brings back spot approvals for condos in a building with 10 or more units if no more than 10% of the units have FHA insurance. A requirement of no more than two units with FHA insurance applies if the building has fewer than 10 units.
Those spot approvals were originally eliminated in 2008 as the FHA tightened its lending criteria for condos. As a result, condo lending as a share of total FHA volume shrank; just 6.5% of the 150,000 condominium projects nationwide are FHA-certified, according to the Wall Street Journal.
The FHA is also extending the recertification deadline for approved condo projects from two years to three. More mixed-use projects also will be eligible now as condo projects for FHA insurance, while also slackening restrictions on owner-occupancy. Overall, the FHA anticipates that the new guidelines will make another 20,000 to 60,000 more units eligible for financing annually.
In loosening the standards, the FHA essentially makes it easier for first-time buyers to look into purchasing a condo, since FHA-backed loans have less strict borrower requirements than first-time loans. The move could help reinvigorate the entry-level condo market for first-time buyers, especially in pricey coastal markets where condos might be a more affordable alternative to single-family homes.
Industry groups have come out in favor of the move, which was in the works since 2016 but got stalled due to the transition between the Obama and Trump administrations.
“The Community Home Lenders Association (CHLA) strongly commends FHA for issuing this final FHA rule, which responsibly provides for more flexibility to originate single-family condo loans,” said Scott Olson, executive director of the Community Home Lenders Association.
The National Association of Realtors (NAR) likewise praised the rule, calling it “long-awaited” after stumping for such a change for more than a decade. “Thousands of new homeownership opportunities” could be yielded by the move, said the association.
“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, which culminates years of collaboration between HUD and NAR, will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people,” said NAR President John Smaby.
FHA Commissioner Brian Montgomery told reporters that the agency has been taking feedback in preparation to modify its condo policies for at least three years.
“It had become clear for many years that we needed to update our condo project approval regulations so that, while not exposing the agency to more risk, they are more flexible and less prescriptive and more reflective of the current market than the previous condominium project approval provisions,” he said.
Questions? Contact Arnie Aurellano at (425) 984-6019 or firstname.lastname@example.org.