FHA issues new condo approval rule to tackle affordability
The Federal Housing Administration issued new guidelines Wednesday that aim to streamline the agency’s approval process for condominium projects. The long-awaited regulations are intended to promote affordable and sustainable homeownership, especially among credit-worthy first-time buyers.
“Many condo buyers have never owned a home before. A new FHA policy aims to expand homeownership.”Source: Forbes.com
The new policy is designed to be flexible and responsive to market conditions. For example, it will allow certain condo units to be eligible for FHA mortgage insurance even if the condo project itself is not FHA approved. The changes become effective October 15.
The approval process includes the following key elements:
Single-unit approvals allowed: FHA introduced a new single-unit approval process to make it easier for individual condo units to be eligible for FHA-insured financing provided the condo building is financially stable.
The vast majority (84 percent) of FHA-insured condo buyers have never owned a home before. While there are more than 150,000 condo projects in the U.S., only 6.5 percent are approved to participate in FHA’s mortgage insurance programs. It is estimated that 20,000 to 60,000 condominium units could become eligible for FHA-insured financing annually as a result of FHA’s new policy.
Project approvals extended: FHA approvals for condominium projects have been extended to three years from two years.
Recertification process simplified: Condominium projects seeking recertification are only required to update new information rather than resubmit all project information. The new rule extends the time frame for recertification to three years from two.
Commercial space restrictions eased: This allows more mixed-use projects to be eligible for FHA insurance.
Owner occupancy rates lowered: Condominium projects with owner-occupancy rates as low as 35% will be eligible for FHA approval based on the project’s financial and operational stability. FHA previously required at least 50% of units in a condominium to be owner-occupied.
FHA concentration rate increased: FHA will now insure up to 75% of condominium unit mortgages in a condo project.
Future policy changes opened to public comment: FHA will provide a 30-day public comment period before implementing future changes to the condominium approval process.
Frank Nothaft, chief economist for real estate data provider CoreLogic, said the new policy could clear the way for a more level playing field for first-time home buyers.
“Requiring a project to be FHA certified has closed the door to FHA financing for many condo projects,” he said. “Condos often are a lower-priced entry point into homeownership. The new policy increases access to FHA financing for more first-time buyers.”
Evidence continues to mount that condo sales will play a more significant role in the mortgage origination market in the next few years, according to CoreLogic. With a flood of Millennial first-time homebuyers expected to soon enter the market for affordable housing, CoreLogic foresees rising demand for condos in the near future.