We’ve been writing about low housing inventory for months. Buyers, especially first-time homebuyers looking for a more affordable home, are scrambling. Now there’s good news to share, and it’s coming from the Federal Housing Administration (FHA). On October 15, FHA rules changed to expand access to condo financing, opening up more opportunities for homebuyers. Here’s what you need to know about how FHA eases condo financing rules.
Condos Are Different.
First, a little background. When you’re buying a single family home, you (the borrower) must be credit-worthy. In addition, the property must appraise for an amount that justifies the loan, meet health and safety standards (unless you are renovating to bring it up to code), and have a clear title so ownership is not in dispute. The difference is that when you want to finance a condo, the condo project must be approved, too. Depending on the type of loan, this means meeting requirements covering the percentage of units that are owner occupied, the percentage that can be owned by a single entity, the percentage of the property that can be commercial space, the financial health of the condo association, and the association’s legal documents.
First-time homebuyers often look to FHA loans because down payments start at 3.5 percent and qualifying credit scores are lower than many loan programs. However, FHA requirements for condo loans have been very strict, limiting the number of units that could be financed. Most importantly, the entire condo project had to pass a detailed certification process to gain a place on FHA’s approved list, and undergo periodic recertification to stay on the list.
FHA Eases Requirements.
If you’d like to read the official rule, it’s in the 1081 page FHA Single Family Housing Policy Handbook. No? Then let’s focus on the most important change. Starting October 15, FHA financing is available for single units in projects that are not certified. This means more condos will be eligible for FHA financing, creating greater opportunities for homeownership.
Single Unit Approval.
The details are straightforward. The condo project must be established and have at least five units. At least 50 percent of the condos must be primary residences. No more than 10 percent of the units (in projects with 10 or more condos) may be financed with FHA loans. In projects with fewer than 10 units, no more than 2 condos can carry an FHA mortgage. Finally, a single entity cannot own more than 1 condo in a project with fewer than 20 units, or 10 percent of the condos in projects of 20 or more units.
If you’re interested in buying a condo, but haven’t been able to find one with financing you can afford, talk to your First Choice Loan Services Inc. mortgage loan originator! This may be the opportunity you need to buy your own condo home.