FHA financing for condos in the future may be very different from what it is today. Here’s the outline.
Current FHA condo project approvals will become invalid on 11/2/2009, and all condo projects will need to be recertified. This applies to any condo groupings with FHA approval prior to 11/2/2009. In the future every condo project will have to be recertified every two (2) years.
“Spot Loan” approvals will be eliminated after 11/2/2009.
Housing and Urban Development (HUD) which completes the approval process, will NOT accept any condo recertification packages until November 3, 2009.
Since the majority of condo projects will need recertification, there will be substantial delays from FHA in completing the recertification and approvals. HUD expects six (6) months, or more, in accomplishing this process.
Now, if this isn’t bad enough, here are some more changes FHA is throwing into the mix. There will be new percentage numbers that will be part of the total FHA package.
Ø Owner occupancy in condo groupings drops from 51% to 50%.
Ø Presales for new construction also drop from 51% to 50%.
Ø No more than 15% of total units can be in arrears on their home owner’s dues.
Ø If a grouping has three (3) or less units, only one (1) can have an FHA loan.
Ø Projects with four (4) or more units can have no more than 30% of the total with FHA loans/insurance.
The last one may be have the “scariest” affect on condo owners. If a condo grouping has 100 units, and presently the project is FHA approved, and presently has 65 percent FHA insured loans, there will be no more FHA financing in that project until 36 percent of the owners sell and their buyers use some other type of financing.
Or, say the project has 100 units and 29 percent have FHA insured financing, and there are 3 units for sale – each hoping to sell with FHA financing. This may mean that the first one to sell can use FHA while the others may not.
So, what’s the alternative?
The most popular form of condo financing is either FHA or VA. VA now takes their lead in condos from FHA.
Conventional loans are not an option since mortgage insurance is not easily available on condo loans with less than twenty (20) percent down payment.
HUD has also addressed the “site condos.” Effective immediately, FHA will allow single family financing on detached site condos. FHA will consider them as “a singly family detached dwelling encumbered by a declaration of condominium covenants or condominium form of ownership. Attached site condos are treated as any other condo.