Major Positive Development for Condo Buyers: FHA Rule Change
The National Association of Realtors (NAR) and potential homebuyers are applauding major rules changes by the Fair Housing Administration (FHA), a division of the government agency, the Department of Housing and Urban Development (HUD). NAR President John Smaby said, “We are thrilled that Secretary Carson has taken this much-needed step to put the American Dream within reach for thousands of additional families,” The World Property Journal reported.
The rules changes are designed to promote home ownership, especially among credit-worthy first-time buyers. Through an easing of the rules, more potential buyers will be able to successfully apply for FHA backed mortgages which require a much lower down payment than a conventional mortgage (3.5% as opposed to 20%).
According to Forbes, for example, “The vast majority (84 percent) of FHA-insured condo buyers have never owned a home before. While there are 150,000 condo projects in the U.S., only 6.5% [were] approved to participate FHA mortgage insurance programs under the older more restrictive guidelines. It is estimated that 20,000 – 60,000 additional condo units could become eligible …”
Prominent Florida mortgage broker, Steve Lepido explained that, “Since FHA mortgage insurance would offer lower down payment requirements, accept less than perfect credit scores, and more liberal debt to income ratios, the new condo rules would particularly benefit first time buyers, the young, and minorities. These groups often struggle to meet the traditional mortgage requirements.” Lepido adds, “It’s a win-win for the above-mentioned population sub-groups, for the real estate industry, and for society, at large.”
Here are some of the beneficial rules changes:
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For the first time, FHA is permitting a new single unit approval process which will make it possible for individual condo units to be eligible for an FHA insured loan, so long as the building is deemed financially stable. Now an individual unit can be approved. Previously, buyers could apply for FHA-backed mortgages only when the entire development was approved.
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The new rule extends the time frame for the condo recertification period for an approved project from two years to three years. Additionally, recertification now only requires updating previously submitted information, rather than a resubmission of all information.
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The new guidelines allow for more commercial (mixed-use) projects to be eligible for FHA insurance.
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While previously FHA required 50% of units in a condominium to be owner-occupied, that percentage has been lowered to 35%.
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FHA will now approve up to 75% of condominium unit mortgages in a condo project.
CoreLogic foresees a flood of Millennial first-time homebuyers entering the market, resulting in rising demand for condos in the near future. According to an analysis by HUD last year, wider availability of mortgages should significantly increase condo unit construction.