FHA Condo Changes Good for Buyers

Yesterday, the Federal Housing Administration (FHA) rolled out a new policy aimed at helping condo buyers in their search for a financially sound condominium complex. However, critics believe some of the new rule changes implemented by FHA will make it more difficult for builders to transfer new condo complexes. For example, the new FHA rules call for condo associations to deposit 10% of their annual budget into a reserve account to be used strictly for repairs and overall maintenance. A threshold of 10% is a significant figure when considering condo complexes with relatively few units.

If FHA dictates mortgage loan approval only in buildings in which the condo association has 10% of their annual budget deposited, it will certainly protect the buyers even further because mortgage lenders will more carefully scrutinize condo complexes in which they are willing to lend. The new guidelines set forth by FHA will ensure that condo buyers are purchasing a unit in which the complex is financially sound. The new FHA condo changes are intended to prevent defaults on condo projects from rising.

Additionally, FHA officials have said loans will not be approved for condos that have an excess of 15% of units more than one month late with assessments. Furthermore, FHA will regulate the maximum percentage of units owned by a single investor to 10%.

FHA mortgage loans are extremely popular, and their popularity continues to surge during these turbulent economic times. While FHA constitutes approximately 30% of all mortgage originations in the United States, it has also fallen below the federal law mandating at least a 2% reserve ratio. Currently at .53%, FHA continues to tighten their belt.

The U.S. Department of Housing and Urban Development (HUD) is now considering some considerable changes to their program in which borrowers will be obligated to bring more funds (5%) to the table than currently expected (3.5%) to qualify for an FHA mortgage loan. In all, the changes put in place by FHA to further scrutinize condo complexes, in addition to borrowers overall credit worthiness, will help FHA manage and mitigate risk, which will ultimately help in continuing the stabilization of the housing market.

If a 5% down payment is not possible for someone looking to purchase, then waiting until January will restrict any mortgage options even further as FHA will unveil their new guidelines in more detail at that point. The combination of extremely low current mortgage rates and the $8,000 first-time homebuyer tax credit, or the $6,500 “move up” homebuyer tax credit, indicates the time is now.

–Robert Hyder