VRE 35

How FHA is Helping Buyers Obtain Condo Financing

First-time buyers are hurting. It’s hard for them to save for a down payment, credit restrictions remain tight, and there are few affordable homes for them to choose from. What’s more, wage gains are modest, home prices keep going up, and now interest rates could be heading up, too. The Federal Reserve has sent signals that it could start raising short-term interest rates as early as this month and more rate hikes could happen throughout 2016.

VRE 35And yet there’s some good news, too, because FHA has announced changes to its rules to make it easier for buyers to get federally insured financing for condominiums. This is important because condos have traditionally been one of the best ways for new home owners to get into home ownership.

Under administrative changes FHA has announced, second homes are no longer considered “investment property” for purposes of determining the owner-occupancy ratio of a condominium project.

Prior to the change, if someone who owns a unit in a condo project uses the unit as a second home, that unit doesn’t count as part of the project’s 50-percent owner-occupancy threshold, which FHA requires. Under that rule, if fewer than half the units are owner occupied, someone who wants to buy a unit in the project can’t get FHA-backed financing. That hurts if FHA is the only viable financing option.

But the FHA change has wider implications than that because it sends a signal to conventional and other mortgage financing sources that it might be time for them to rethink their owner-occupancy ratios as well.

FHA announced two other changes: a streamlined recertification process, and an expansion of the types of insurance condo owner associations can have for their project to be eligible for FHA financing.

These three changes are key because they address one part of condo financing that has nothing to do with the creditworthiness of the borrower: they address the hoops the condo project has to go through before FHA will permit a borrower to apply for its mortgage insurance.

It’ll be helpful to watch how things change in the months ahead to see if the eased requirements lead to more households obtaining FHA financing for condo purchases. But for now, REALTORS® can take satisfaction in knowing FHA responded to concerns NAR had been raising for the last three years. And more changes are in the works, according to the agency. Details are in the video above.

The FHA announcement is one of the stories in The Voice for Real Estate for the week of November 23, 2015. Another segment looks at NAR’s new member benefit for keeping REALTORS® integral to real estate as transactions increasingly go digital. Under the benefit, REALTORS® get free access to two products from zipLogix®: its forms software program and its transaction management platform.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at rfreedman@realtors.org.

More Posts

Comments
  1. I’m looking forward to these updates, but I don’t think it goes far enough. From a seller’s perspective, FHA is influencing home values by using these antiquated rules. The MARKET should determine value. Owner-occupancy percentages shouldn’t be a consideration at all. Not for any financing (I’m looking at you Fannie and Freddie). Next up they need to look at the allowable percentages of commercial space. Infill and urban density are wanted, but OOPS not if the development has a lot of (highly desired) commercial space…. Makes absolutely no sense. If the HOA has sufficient reserves – anything should be up for grabs IMHO.

  2. Whoa, the market determining the value of things? Sounds scary, Stephanie. ;)

  3. I’m very interested in the trickledown effect of this to mortgage lenders. Hopefully it’ll all add up to a larger homeownership ratio in coming years!

  4. I agree with Stephanie, the market will not go far enough as expected. If the market determines the value, fair enough in terms of sellers perspective.

  5. Just be sure that the Condo Association allows FHA financing or if you can mortgage the condo at all. Many Associations have stipulations in their by-laws that if more than a certain percentage of the units are in distress (foreclosure or pre-foreclosure status) then they will only allow cash purchases of any of the units within the complex.

ADD YOUR COMMENT