Condominiums are among the most affordable option for first-time homebuyers. Yet, condo sales have been on the decline in recent years, according to the National Association of Realtors (NAR).
In August, the Federal Housing Administration (FHA) published a new condominium approval rule, effective October 15, 2019. The FHA is one of the largest insurers of mortgages in the world, and insures loans on single-family and multifamily homes, among other types of properties. The new condominium rule will allow more condos to be eligible for FHA insured financing.
A Change in Approval Rules
The Federal Housing Administration’s final regulations on the new approval rule have been long-awaited. The changes are “in an effort to promote affordable and sustainable homeownership, especially among credit-worthy first-time buyers,” the press release stated.
Currently, the entire condominium complex must be approved by the FHA in order for a loan to be approved for a single unit. To date, only 6.5% of 150,000 condo complexes in the United States are approved to participate in FHA’s mortgage insurance programs. With the new policy, an estimated 20,000 to 60,000 condo units may be eligible for FHA financing each year.
Key Changes for Homebuyers
Beginning October 15, 2019, three significant changes will allow for more single-family condominiums to be approved for FHA-insured financing. These rules allow for:
- Single-unit approval process. Selected units can be insured for mortgages, even if they are in complexes that are not currently approved.
- Extended certification. Project certification will extend from two years to three years.
- More flexibility. The owner/occupant and commercial/residential ratios are also changing for more flexibility.
Determine if your condo is approved for an FHA-insured loan.
If you are a current condominium owner, you can determine if your unit is approved for an FHA loan.
- By filling out this form on the U.S. Department of Housing and Urban Development (HUD) website, you can search to find out if your association qualifies for an FHA approved loan. You will get results back instantly. If your association is on the list, then all units within the development are approved for FHA financing.
- If your association is not on the list, it is still possible to obtain approval as a single unit under the new rules. The condo association will need to fill out a questionnaire (coming soon). The questionnaire goes to the mortgage lender, who will take care of the paperwork from there. The approval status for single units will be determined once a condo is under contract.
The changes may give homebuyers more to choose from. Always speak with your mortgage lender about all of your financing options.
A full overview of the rules and regulations can be found here.