A Triumph for Both Home Sellers & Buyers – FHA Eases Condo Regulations
Condominiums have been a tough sell in the years following the Real Estate crunch. Strict mortgage regulations, as applied to condominium purchases, were getting in the way of many home buyers looking to purchase a condo. The immediate result was falling condominium prices which unfairly damaged condo owners. Owner to renter occupancy ratios were much of the problem, falling prices increased investor ownership and regulations tightened even further. All secondary markets and mortgage backers have some hesitation when it comes to condos but FHA, being the most rigid, is finally seeing the light.
The Federal Housing Administration (FHA) has lowered its owner-occupancy requirement for condominiums, marking progress in an issue believed to be preventing homebuyers from entering the real estate market. The action, announced in a mortgagee letter issued this week, lowers the requirement from 50 percent to 35 percent, effective immediately.
Condo projects older than 12 months with at least 35 percent owner occupancy (and less than 50 percent) can qualify for FHA certification, provided other conditions are met. From FHA’s letter:
• Applications must be submitted for processing and review under the U.S. Department of Housing and Urban Development (HUD) Review and Approval Process (HRAP) option;
• Financial documents must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20 percent of the budget;
• No more than 10 percent of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments; and
• Three years of acceptable financial documents (defined in the letter) must be provided.
The action is a win for the real estate industry, which has been advocating for changes, and homebuyers, especially first-time buyers for whom condos are the most affordable housing option.
The lowered requirement is a step forward, says National Association of REALTORS® (NAR) President Tom Salomone.
“NAR has been fighting for changes to FHA’s condominium rules for years, and the mortgagee letter announced will bring some much needed relief to the market,” says Salomone. “Condominiums will have a much easier time getting certified by FHA, and Realtors® will have more options for clients looking to purchase a condo with an FHA mortgage. This is a big win for NAR, and while we believe all condominiums should have the rules applied to them equally, we also believe FHA has heard the concerns of Realtors® and is moving in the right direction.”
NAR will continue to work with FHA to address transfer fees, commercial space requirements, and other issues, Salomone says.
FHA’s action comes following the passage of the “Housing Opportunity Through Modernization Act,” which mandated the lowered requirement. Reprinted with permission from RISMedia. ©2016. All rights reserved.
Ever wonder what Closing Costs you’ll be responsible for when you buy or sell a home? Check out our infographic and article:
— — —
What is standard and legal procedure in a Real Estate transaction?
Additional Helpful Information for Home Buyers
— — — — — — — —