FHA Issues New Condo Approval Rule
The Federal Housing Administration published a new final regulation aimed at relaxing requirements for condominium projects seeking approval for FHA eligibility.
HUD Secretary Ben Carson said the policy revisions include ability to approve individual units in non-approved condo projects. He said the new regulations, scheduled to go into effect Oct. 15, are part of an effort to promote affordable and sustainable homeownership, particularly among credit-worthy first-time buyers.
The new condo rule and the new Condominium Project Approval section of the Single-Family Housing Policy Handbook would allow certain individual condominium units to be eligible for FHA mortgage insurance even if the condominium project is not FHA approved. It introduces a new single-unit approval process to make it easier for individual condominium units to be eligible for FHA-insured financing; extends the recertification requirement for approved condominium projects from two to three years; and allows more mixed-use projects to be eligible for FHA insurance.
“Condominiums have increasingly become a source of affordable, sustainable homeownership for many families and it’s critical that FHA be there to help them,” Carson said. “Today, we take an important step to open more doors to homeownership for younger, first-time American buyers as well as seniors hoping to age-in-place.”
“This new rule allows FHA to meet its core mission to support eligible borrowers who are ready for homeownership and are most likely to enter the market with the purchase of a condominium,” added HUD Acting Deputy Secretary and FHA Commissioner Brian Montgomery.
The Mortgage Bankers Association commended the proposal. Pete Mills, MBA Senior Vice President for Residential Policy and Member Engagement, praised the announcement.
“The condominium market is a critical gateway to affordable homeownership, and MBA applauds the steps FHA has taken to increase borrowers’ accessibility to quality housing,” Mills said. “The new guidelines, many of which MBA advocated for, will create more financing options that will help first-time homebuyers and low-to-moderate income borrowers. It will also provide lenders with much-needed clarity to promote safe, sustainable, and affordable lending. MBA looks forward to continuing to work with HUD on policies and procedures that promote FHA’s mission.”
HUD noted the vast majority (84 percent) of FHA-insured condo buyers have never owned a home before. While there are more than 150,000 condominium projects in the U.S., only 6.5 percent are approved to participate in FHA’s mortgage insurance programs. As a result of FHA’s new policy, it is estimated that 20,000 to 60,000 condominium units could become eligible for FHA-insured financing annually.
As of October 15, FHA will insure mortgages for selected condominium units in projects that are not currently approved. An individual unit may be eligible for Single-Unit Approval under the following conditions:
–The individual condominium unit is located in a completed project that is not approved;
Other criteria:
–For condominium projects with 10 or more units, no more than 10 percent of individual condo units can be FHA-insured; and projects with fewer than 10 units may have no more than two FHA-insured units.
–FHA will require that approved condominium projects have a minimum of 50 percent of the units occupied by owners for most projects.
–FHA will only insure up to 50 percent of the total number of units in an approved condominium project.
–FHA will require that the commercial/non-residential space within an approved condominium project not exceed 35 percent of the project’s total floor area.
The rule can be accessed at https://s3.amazonaws.com/public-inspection.federalregister.gov/2019-17213.pdf.
The Single-Family Update can be accessed at https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh.pdf.
