FHA Mortgages For Condos : Guidelines About To Loosen?

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via: TheMortgageReports.com by Karen Lawson

The Issue : FHA Restricts Condominium Lending

For buyers of condominiums in places like Chicago, Illinois; New York City, New York; or Minneapolis, Minnesota, the FHA's popular 3.5% low-downpayment mortgage program has been elusive. Because of the FHA's strict condo requirements, few buildings are even FHA-eligible.

For example, any of the following traits can disqualify a condo for FHA financing:

• Investor Concentration Exceeds 50% : The FHA will not currently finance a condominium unit if more than half of the building units are "rentals". This is increasingly common in big cities in which real estate investors are buying foreclosed units and rehabbing and renting.
• Commercial Space Exceeds 25% : The FHA will not currently allow condo financing in buildings for which commercial space (e.g.; retail stores, offices) accounts for more than one-quarter of the entire building square footage. Common areas and walkways do not count toward the 25%.
• More Than 15% Of Units Past-Due on Assessments : The FHA will not currently finance a condominium units if more than 15% of the units in the building are more than 30 days delinquent for assessments.

When a condo is deemed ineligible for the FHA, home buyers cannot use FHA financing in the building, and existing homeowners cannot refinance via the FHA (except via the FHA Streamline Refinance program).

Plans To Loosen Condo Lending Coming?

For home buyers with small downpayments, the FHA offers one of the few mortgage programs requiring less than 5 percent down. It also offers relaxed approval standards for qualified buyers.

This is one reason why there's a push within the FHA to make condo lending less restrictive. It's a plan that's not been publicly released, and it may not pass for weeks or months, but when changes are made, FHA condo loans will be more readily available, and the FHA will be using lending policy to help advance the housing market.