The Department of Housing and Urban Development (HUD) recently announced new rules and policies regarding FHA loan approval of condominium units. This is the news realtors, lenders and homebuyers have been anticipating for over a decade because condominiums have become a source of affordable, sustainable homeownership for many families.

 

In an effort to promote affordable and sustainable homeownership, especially among credit-worthy first-time buyers, the Federal Housing Administration (FHA) has established a new condominium approval process allowing certain individual condo units to be eligible for FHA mortgage insurance even if the condominium project isn’t FHA approved.

 

In the past, a person who wanted to purchase a condo using an FHA loan had to choose a unit that was located within a previously approved condominium project. In other words, the entire building had to receive approval before a person could buy an individual unit with an FHA-insured mortgage loan.

 

This change makes the FHA loan program more flexible and responsive to market conditions. The new rules and guidelines will allow certain individual condo units to qualify for FHA mortgage insurance even if the rest of the project / building has not yet been approved for the program.

 

 So, that condo you or a client wanted, but couldn’t have, may now be FHA approved!

 

There are other guidelines as well, in addition to those highlighted above. They will be included within the newly updated Single-Family Housing Policy Handbook, which is available online. Lenders and borrowers can refer to that handbook to learn more about single-unit condo approval for FHA loans or contact your local loan officer at Greenway to learn more.

 

 

While the FHA loan program is not limited to first-time buyers, this group accounts for the majority of condo purchases that are financed through the government-backed loan program. According to HUD data, 84% of FHA-insured condominium buyers have never owned a home before. In addition, the new condo rules are expected to significantly increase the number of approved projects.

 

As a result of these new rules and policies, the FHA loan program could take a bigger share of the mortgage market in 2020.  Buyers who had to rely on conventional financing in the past to purchase a condo might now be eligible for the FHA loan program.

 

 

 

 

• If the non-approved condominium project has 10 or more units, up to 10% of them can be FHA-insured. (To extend eligibility beyond that 10% limit, the entire project would probably have to be approved.)
• Non-approved projects with fewer than 10 units can only have up to two FHA-insured units.
• FHA will only insure up to 50% of the total number of units in an approved condominium project.
• FHA will require that approved condominium projects have a minimum of 50% of the units occupied by owners for most projects.