Developers Rejoice! FHA will now insure up to 75% of condo unit mortgages in a condo project.
These new rules should finally expand access to condo financing. In fact, the FHA estimates that as a result of the revisions as many as 60,000 additional condominium units will become eligible for FHA-insured financing annually. HUD data show condominium unit mortgages currently account for fewer than 2% of all FHA-insured mortgages, exposing a critical failure of federal housing policy. The changes announced are intended to allow the agency to expand homeownership for many Americans.
Millions of homebuyers could benefit from the changes. The Foundation for Community Association Research estimates 40% of the nation’s 27 million community association households call a condominium home, accounting for approximately 10% of the nation’s housing stock.
The new requirements: the condominium project must: (1) be primarily residential in nature and not be intended for rental for transient or hotel purposes; (2) consist only of one-family dwelling units; (3) be in full compliance with all applicable federal, state, and local laws with respect to zoning, fair housing, and accessibility; (4) be complete and ready for occupancy; and (5) be reviewed and approved by the local jurisdiction.
This change will enable more owners of individual condominium to access FHA-insured loans since many associations are unable to become FHA-certified due to high cost of certification.
Single-Unit approvals will now be possible: FHA will insure up to 10% of mortgages in condos without FHA approval, so long as the condo is financially stable. So, this will allow owners to access FHA-insured loans without the condo having the burden of costly FHA certification. This change will enable more owners of individual condominium to access FHA-insured loans since many associations are unable to become FHA-certified due to high cost of certification.
The minimum level of required owner-occupied units will be relaxed: Condominium projects with owner occupancy rates as low as 35 percent may be eligible for FHA approval based on a number of factors, including whether there is existing or new construction on the project, and the project’s financial and operational stability.
Also, more mixed-use projects will be eligible for FHA insurance: FHA’s Final Rule has set the maximum commercial space percentage upper limit to 45 percent of the total floor area, which will allow more mixed-use projects to be eligible for FHA insurance.
FHA will now insure up to 75% of condo unit mortgages in a condo project.
Contact Attorney Rob Pellegrini, president of PK Boston at (508) 807-1131 if you’re interested in learning how to use this rule to your next project’s advantage.