FHA Announces New Rules for Condo Loans
Until now, finding and obtaining financing for an FHA-approved condo seemed about as rare as a waterfront property with a city view. Today only 6.5% of all condominium projects are eligible for FHA financing. But come October 15th there will be 20,000-60,000 additions to the list of approved condo properties.
Why Should I Consider an FHA-Insured Condo Loan?
Condominiums are a popular option among first-time home buyers; those looking to finance a home with less upfront cost; and the portion of the population who could do without ever having to cut the grass again. The list of reasons to obtain FHA-insured financing are almost identical (except for the whole grass thing). This is why the new set of guidelines for condo approval regulation detailed in the Federal Housing Administration’s August 14th announcement is big news for condo buyers.
What Changes Are Coming for Condo Buyers?
In order to purchase a condo with an FHA-insured mortgage the condominium must be on the FHA’s list of approved properties. With the following changes to the FHA’s approval process, this list is expected to grow substantially.
Owner-Occupied Ratio – The previous set of regulations required 50% of units in the condominium be owner-occupied. As you may imagine, many condos are purchased as investment properties. This leaves few properties eligible for FHA insurance. The new set of requirements lowers the ratio from 50% to 35%
Spot Approvals – This one is a true game changer. Previously, the entire condominium property needed to check all the boxes on the long list of requirements. After October 15th, buyers will be able to gain approval on an individual unit. There are a couple caveats:
- In a building with 10 units, no more than 10% of the units can be FHA-insured
- In a building with less than 10 units, only 2 of the units can be FHA-insured
Mixed-Use Developments – You love the idea of a condo that sits above the city’s trendiest dance-studio-kombucha-shop-micro-brewery-combo. Well now you can live that dream with the FHA increasing the amount of allowed non-residential space. The FHA will insure condo mortgages in mixed-use properties as long as non-residential space does not exceed 35% of the square footage.
Is an FHA Condo Loan for Me?
Before falling in love with the idea of an FHA loan, take some time to learn whether it is the right type of mortgage for you.
You can read more about the ins-and-outs of FHA here. For a more personalized perspective, contact one of our local mortgage experts today.