Understanding New FHA Condo Financing Rules
Long sought-after easing of FHA condo financing rules was enacted into law in late July (H.R. 3700) and HUD is finishing rules to implement the changes. Among other things, this law relaxes owner-occupancy ratios and makes financing easier to get in mixed-use projects.
To help you understand some of these new rules, the National Association of REALTORS® (NAR) hosted a live webcast with NAR Senior Regulatory Policy Representative Megan Booth and Legislative Policy Representative Sehar Siddiqi. Here are a few key takeaways from what they discussed.
Q: What are some of the first things REALTORS® need to be thinking about in the condo loan process?
A: Less than 20-percent of condos nationwide are certified for FHA approval; find out if the building is already approved and if your client is pre-qualified for a loan.
Q: Why would someone want an FHA mortgage?
A: FHA is a great product, especially for first-time home buyers, offering a 3.5-percent down payment with flexible underwriting. Depending on the market, condos are generally 20 to 25-percent less expensive than single-family homes.
Q: What are the current loan limits through FHA?
A: You can look up FHA loan limits online, but they’re from the high 200’s up to $625,500.
Q: What about HUD’s new formal guidance on owner-occupancy ratios?
A: For FHA financing, a condominium is required to have a 50-percent owner-occupancy ratio, but they’re actually allowed to go down to 35% — assuming they meet a higher level of reserves; there are also limitations on delinquencies with condo fees, and a certain number of financial documents are required.
Q: If a building is not yet approved, how is this an opportunity for REALTORS?
A: If you can help them go through the approval process with a lender, this could open up a whole new set of properties for you. There is a free video available to show condo associations the benefits of getting certified.