FHA Revises Condo Rules

FHA is loosening on a few aspects of lending for condos. Four new policies will make purchasing a condo with an FHA loan easier (not only FHA as other lenders often follow FHA’s lead.)

1. FHA can approve loan applications for condos in projects that have as much as half of their space devoted to commercial use up from 25% before the change.
2. The agency is now allowing single invesotrs to buy up to half the units in a project, up form 10% previously. That move is likely to help suburban and urban markets as resort areas.
3. 3 & 4 touch on delinquent home owner association dues and condo board certification. 3. The FHA says it will OK loans on project in which 15% of the home owners are 60 days late on their HOA dues.That represents an easing from the previous 30-day delinquency limit.
4. certification change concerns the liability risk of condo board reps. Previously, officers had to confirm that they had “no knowledge of circumstances or conditions” that could adversely affect the building. But many representatives are volunteers reluctant to take on that legal responsibility. The language has been softened and now recognizes boards’ good faith efforts to verify condo information.

We are still waiting on FHA to soften on it’s requirement that a building must be at least half owner occupied. Which is extremely tough for resort buildings. NAR analysis say that could loosen by early next year.

Lastly, another needed change relates to the 50% FHA financing limit. Currently, FHA won’t approve a loan if half of the units in a project already have FHA financing. “Spot approval” changes are also on the radar, practitioners say.