Loan Approvals For Condos May Be About To Change

For years, there have been restrictions on buyers being able to get a loan on certain condos.   One of the big obstacles for buyers and sellers has been that if the building had more than 50% of the units being occupied by renters, then loans could be denied for prospective buyers on a unit in that building.  This is a harsh restriction for many reasons.  If the building was small, such as a 6 unit building, then if 3 were rented, that would be 50%.  Plus, if you need to sell your unit and these restrictions are in place, then you may be stuck having to rent your unit yourself which could be a domino effect on the entire building causing a building to have more and more renters over time.   But the FHA has proposed a change in the rules and this is what the US Department of Urban Housing and Development said on the issue:

"FHA currently requires that approved condominium developments have a minimum of 50 percent of the units occupied by owners. While having too few owner-occupants can detract from the viability of a project, requiring too many can harm its marketability. Through this proposed rule, FHA is specifically inviting comment on this issue and is proposing to establish an allowable range between 25 and 75 percent. The range allows FHA to choose a specific percentage that is responsive to future market changes."

Another big change that may come is in the ability for a buyer to get an FHA loan on condos.  As the way things stand today, an entire building must be "FHA approved" in order for a buyer to use an FHA loan.  This process requires the building pay fees and pass an inspection before approval.  Most buildings have decided to not go through this process since the market has been on the rise and units are able to sell to buyers not using FHA loans.  But this leaves FHA buyers with very little to choose from. We may be seeing "spot" approvals for condos soon which means the whole building may not need to have the FHA approval in order for a buyer to purchase a unit.  The US Department of Urban Housing and Development posted this:

Under certain circumstances, FHA is proposing to insure mortgages for selected condominium units in developments that are not currently approved. An individual unit may be eligible for Single-Unit Approval if:

• The Condominium Project is not on the list of FHA-approved Condominium Projects, or the unit is not in a project that has been subject to adverse determination for significant issues that affect the viability of the project;
• The individual unit is located in a completed project that has not yet been approved;
• The unit is not a manufactured housing condominium project or located in a two-to-four-unit project;
• The condominium unit is not a manufactured home and is in a project that has at least five dwelling units; and
• The unit is in a project in which the amount of Single-Unit Approvals is limited to a maximum of 20 percent of the total number of units in the project, which may be reduced to as low as zero percent via subsequent notice.
• 
  

To read more about changes coming to loans on condos, read here http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2016/HUDNo_16-146

                                                                               

FHA Regulations Regarding Condos Are Loosening

Have you been burdened by trying to buy or sell a condo because of the strict FHA regulations? If you own a condo, chances are you know about these. There are a lot of rules and guidelines that come with trying to purchase homes using FHA financing (which is the largest source of low-down payments on mortgages) In the past, in order to buy a condo using FHA, they have had rules that say things like: you can't buy a condo if more than 25% of the buildings' space is used for commercial or is not part of the living space of a condo. They've also put strict regulations on the owner to renter ratio in a complex saying that if a certain amount of the condos are rented, then the whole building can not qualify for someone who wants to use FHA financing to buy a unit in that building. This has been tough to work around for complex in cities that are becoming very popular called "mixed use" or "live/work" condos. This has also been a huge challenge in these hard financial times where people couldn't sell their condos when they lost so much equity in them, so instead, decided to rent them.  This made it hard for other owners that needed to sell their unit, but now had a lot of units in their building that were being rented.
Well, we are seeing some light at the end of this tunnel and here is what has been changing with FHA and condos:

*now, condo buildings can have up to 35% commercial use, and in certain circumstances even up to 50%

*In existing developments, one or more investors are now allowed to own up to 50% of the total units provided that at least half of the units are owner-occupied.

*and lastly, FHA had language written in their regulations that could potentially put condo board members at risk of being heavily fined or even face jail time by admitting, or not admitting, to conditions they knew about their building. This language has now changed and does not put board members of condo buildings in such a burdensome crossroads of liability with these things. 

All in all, these are positive steps in the right direction and will help more sales of condo units which is great news for both sellers and buyer.  You can find more information about FHA regulations and condos here: http://speakingofrealestate.blogs.realtor.org/2012/09/13/fha-eases-some-key-condo-financing-limits/