Buying a condominium may become easier in the near future, thanks to recent changes in the Federal Housing Administration (FHA) mortgage program. The new FHA mortgage rules, applying specifically to condominiums, became effective August, 2016 with the passage of Bill H.R. 3700.
FHA mortgages are an important source of financing for first-time home buyers, because they offer low down payments, as little as 3.5%. They are the most forgiving when it comes to credit score requirements. FHA loans also allow higher debt-to-income ratios compared to other types of mortgages, making it easier to obtain approval.
However, obtaining an FHA mortgage for a condo became problematic after the Great Recession, due to restrictive underwriting changes. Condominium associations found FHA compliance so onerous, that most of them pulled out of the eligibility program. For those relying on FHA financing, this effectively removed condos from their home buying choices.
Fortunately, the new rules remove much of the red tape for condo buyers. Here are some highlights of the new FHA mortgage rules affecting condominiums:
Condo associations now have a streamlined process for certifying FHA eligibility. FHA mortgage underwriting looks at the entire condo association’s financial condition when considering a mortgage for a single unit. In the past, this review process required reams of documentation from the association. The new process makes things easier for condo associations to meet FHA requirements.
Owner-occupancy ratio requirements will be reduced from 50% to 35%. FHA used to disallow condo buildings that had more than half of the units occupied by renters. This rule has been relaxed to allow more building to qualify.
Transfer fees will be allowed. Most condo associations require some form of transfer fee when a unit is sold. FHA financing did not permit these fees in the past.
It will take some time for these changes to work their way through the FHA system, and for condo associations to renew their FHA eligibility. Your Exclusive Buyer Agent can help you navigate the process of a condominium purchase! He or she can also refer you to reputable local lenders who are experienced with FHA financing.