The Federal Housing Administration (FHA) has changed the rules for condos. Now it can be easier for condos to become eligible for FHA financing. This has been a long time coming and a welcome move. The FHA tightened up their eligibility requirements post the real estate meltdown.
The new guidelines will take effect on October 15, 2019. One change is that individual condos may be eligible for what they call “spot approval.” These changes affect condominium projects where there are more than 10 units. For “spot approval” only 10% of the total units can be FHA eligible.
What’s New In The Guidelines?
- The time horizon for FHA re-certification will be three years. For approved condo projects from two to three years.
- The FHA also has increased the limit it had on commercial projects. Now, up to 35% of the square footage to be for commercial use.
- Rental rates have changed to a 70% tolerance, and owner occupied units must be at least 30%.
- The FHA said it will approve a condominium for up to 75% of the units in the property.
- The FHA is also clamping down on associations who do not budget for and fund their reserves. This should not be the only reason a condominium should have a solid reserve policy.
What Hasn’t Changed
The state of condominium association finances are still an important consideration. Very important are the number of delinquencies that the FHA will tolerate. The new directive by the FHA does not specify an unacceptable delinquency rate. Yet there can be no doubt it will considered during the approval process. For this reason condos need to address the issue. This is another good reason to consider and institute a uniform collection policy.
The Bottom Line: More Approvals for All
The new guidelines will allow more condominium units to be eligible for FHA financing. Estimates range from 20,000 to 60,000 units per year. The FHA has changed the rules for condos and your association should take advantage of this opportunity.
Only 9,866 condominium projects are currently on FHA’s approved list of 150,000 nationwide. That represents only 6.5% of condominium associations throughout the United States. You can check to see if your building is eligible by going to the FHA Review website. FHA eligibility deserves the attention of your board of directors. Don’t miss this opportunity to increase property values.