FINALLY!!! FHA Relaxes Condominium Financing Rules!!

By
Services for Real Estate Pros with Aston McLaren Inc
http://actvra.in/MHX

It is always been extremely difficult if not almost impossible to get FHA financing in many condominium properties.  This is because the Federal Housing Administration (FHA) has never fully supported the concept of condominium purchases. However, the FHA is going to make some temporary exceptions to the current rules.

Typical FHA rules for condominium financing provide that no one condominium in a condominium development can be eligible for financing unless the entire development has been FHA-certified. There are so many rules, regulations, and potential legal liabilities that many condo homeowners’ associations (HOAs) opt out of the process.  They had the luxury of doing this when markets were strong several years ago.

However, in today’s tight lending market, more and more buyers are wishing they could get the relatively “looser” financing offered in an FHA loan. Their dream has come true – at least for the now. The FHA announced recently that its requirements for development-certification will be loosened for the foreseeable future. They will allow FHA certification on mixed-use developments – an increasingly popular building and residential trend – “provided that the commercial interests don’t harm the building’s residential component” and the leeway regarding delinquent association dues has been expanded so that no more than 15 percent of units can be more than 60 days delinquent on dues. Previously, that number was 30 days. Also, condo association boards will be less liable for FHA certification violations than previously, which will make more condo developments more open to getting certified.

Under previous versions of the FHA condominium rules, about 2,100 of the 25,000-of condo projects nationwide were certified as of late 2011. Consequently, the FHA was insuring very few condo unit loans (35,433) and unit owners were losing money and buyers because financing was so hard to obtain. The FHA and the Community Associations Institute (CAI) predict that the rule changes “will spark home sales and help tens of thousands of condominium communities begin to recover from the housing slump.” Let’s hope so…this will be a tremendous benefit to the current market.

 

Paddy Deighan J.D. Ph.D

http://www.homesavers.pro

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  1. Joe Jackson 09/25/2012 07:23 AM
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Rainer
40,894
Diana Roca
Century 21 Camelot Realty Inc.

Here in Brevard County Florida, we won't hold our breathes.

September 26, 2012 06:14 AM
Rainmaker
72,463
Chicago Real Estate
Goran Utvic
Goran Utvic | Chicagoland Brokers Inc, Chicago IL 60656

Paddy that is great to hear and the 60 days behind on HOA dues is huge! Do you know if the guilines for HOA reserves has been lifted or changed at all?

September 26, 2012 06:14 AM
Rainer
118,111
Ron Aguilar
Mortgage & Real Estate Advisor since 1995
Real Estate Buying Advice

This is a start but not the full enchilada

September 26, 2012 06:17 AM
Rainer
83,887
Brad Baylor
ERA Coup Agency

Paddy - Now if FHA would just relax on the peeling paint on the detached garage, or insisting that a hand rail be installed on a gently sloping sidewalk with two steps on it... that would be even more exciting!

September 26, 2012 06:20 AM
Rainmaker
347,853
Sylvie Stuart
Home Buying, Home Selling and Investment - Flagstaff, AZ
Keller Williams Check Realty 928-600-2765
This has always been frustrating, especially for first time home buyers who go with FHA financing, and can't get into a condo. Good news!!
September 26, 2012 07:01 AM
Rainer
201,575
Nan Jester
Realtor, Exit Real Estate Gallery
Exit Real Estate Gallery Jacksonville Beach, FL

I run into this all of the time because there are quite a few condos in my area and MOST are not approved even though I have buyers for many. It would help buyers, the economy and the communities, as you stated.

September 26, 2012 07:13 AM
Rainmaker
134,900
Dennis J. Zisa
25 years in So. Jersey and the Greater Camden area
Dennis J. Zisa & Associates, Inc.

Thanks for this great update. Your report is comprehensive and to the point!

FHA is always more of a challenge to work with, but knowing the rules, makes it less so. 

September 26, 2012 08:14 AM
Rainer
207,315
Akerly Real Estate Team Manhattan & Brooklyn Real Estate
Akerly Real Estate Team

The process of getting a building FHA approved is way too cumbersome.  It's not just that the rules are too strict.  I actually think HUD made a poor choice raising the level of delinquincies permitted.  Further, the commercial space issue was rarely an issue. How many condo projects do you know that had 25% or more of the building made up of commercial space?  I work in Manhattan and Brooklyn (i.e. super urban, mixed-use) and it was RARELY a problem.  We did have an issue recently with that but it was only because it was an extremely small (4 unit) residential component on top of two stories of commercial.

I represent condo sponsors (developers) on a regular basis.  These are business people that make a living developing.  On a pre-development "team" we have the sponsor, their attorney who drafts their offering plan for submission to the Attorney General's office, and a preferred lender who will ultimately do the retail loans to buyers.  Even with all of those players on the team, we typically have to hire an "FHA consultant" who gets paid a few grand just to deal with the cumbersome paperwork required for approval.  It's THAT process that needs to be fixed. 

Oh, but I think it's great that the lessened the potential personal liability for condo board members.  That was a real deal killer for a lot of existing condominiums considering applying for approval.  

September 26, 2012 08:29 AM
Rainer
191,711
Dörte Engel
ABC - Annapolis, Bowie, Crofton
RE/MAX Leading Edge

Dear Paddy,

The catch 22 with many condo associations is that they have high delinquency rates, but buyers using FHA cannot buy the well-priced distressed homes and start providing one less delinquent home owner. Maddening at times. Luckily, once HUD gets them, they become exempt.

September 26, 2012 08:41 AM
Rainmaker
532,442
Cynthia Larsen
Sonoma County Real Estate Broker
Safe Haven Realty

Delinquencies aside, the owner occupancy ratio is what is killing condo financing in my area. I have two listings where the owner ratio is 35%, most units are investments with college students as tenants. Cash only, folks!

September 26, 2012 09:44 AM
Rainmaker
267,176
Paddy Deighan JD PhD
Paddy Deighan J.D. Ph.D
Aston McLaren Inc

Cynthia, I couldn't agree more!!

September 26, 2012 09:47 AM
Rainer
104,249
Ric Mills
Integrity, Honesty, and Vast Real Estate Knowledge
Keller Williams Southern Az

Finally they are seeing the light.  That is a big part of the business in the west and it has a two plus years of pent up inventory.  It can be a good market source.

September 26, 2012 10:26 AM
Rainmaker
307,437
John DL Arendsen
Real Estate Bkr, Factory Built home Dealer/Devlpr
TAG Real Estate Sales & Investments & ON THE LEVEL GC

It's about friggen time!! {:<)

September 26, 2012 11:04 AM
Rainmaker
80,295
Tom Esposito
Alpharetta Home Solutions

Good info.  I knew it was coming but didn't have the details.  I certainly hope that this will help light a fire under the condo market.  In Atlanta, we didn't experience the real estate downturn until 2007 a full year after the slide elsewhere.  Now, many regions are experinceing a good growth spurt.  Not Atlanta.  We'll probably be a year behind everyone else.  So every improvement will be welcome. 

September 26, 2012 11:55 AM
Rainmaker
629,408
Stephanie/Bob The Ruiz/Miller Team
The Ocala Dream Team
Keller Williams Cornerstone Realty

Hi Paddy, we agree, it is about time FHA got with the program!

September 26, 2012 12:08 PM
Rainmaker
132,587
Liane Thomas - Corona & Riverside Real Estate
Bringing you Home!
The Jet Team, Keller Williams Realty, Corona Real Estate

This is wonderful news for communities, like mine, with several condo complexes and a higher percentage of delinquent HOA accounts.

September 26, 2012 01:09 PM
Rainer
63,395
Eric Salonga
Your Key to the Central Valley
The Salonga Brothers at Reed Realty

That's great that first time home buyers can purchase condos that were previously unavailable to them.

September 26, 2012 08:49 PM
Rainmaker
166,413
Dan Derito
Success! Real Estate

Thank you for the update Paddy.   This may help some of those people who could otherwise afford to buy a chance to move out of apartments. 

September 27, 2012 04:45 AM
Rainmaker
647,735
Evelyn Kennedy
Alameda, Real Estate, Alameda, CA
Gallagher & Lindsey, Alameda, California

Paddy:

We have had difficulty with FHA and condos in my area.  I am so happy to hear the new regulations for condo. Thanks

September 28, 2012 10:17 AM
Rainmaker
1,237,398
Gene Riemenschneider
Turning Houses into Homes
Home Point Real Estate

This is great news for Condo communities and the market in general.  Thanks for the post.

October 02, 2012 03:34 PM
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Rainmaker
267,176

Paddy Deighan JD PhD

Paddy Deighan J.D. Ph.D
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