Starting October 15, 2019, FHA is updating their guidelines to make financing a condo easier for owners. This has been a long awaited update that will allow for individual unit approval and relax it’s requirements to make more properties eligible for FHA financing.
This new policy creates flexibility within changing market conditions. This update includes the following key changes:
Individual Condo Unit Approval for FHA
It is now easier to approve single-unit condos for financing. Previously, a person who wanted to purchase a condo using FHA financing had to choose a unit within an existing approved condominium project. The entire building would have had to receive approval before a person could buy a single unit with an FHA-insured mortgage loan.
Now the FHA will allow the approval of individual condo units! The new guidelines will allow certain single-unit condos to qualify for FHA mortgage insurance, even if the rest of the project/building has not yet been approved for the loan program.
Who Benefits from this Change?
Ben Carson, the HUD Secretary, believes that this new update will be especially helpful to first-time home buyers and senior citizens.
“Condominiums have increasingly become a source of affordable, sustainable homeownership for many families … Today, we take an important step to open more doors to homeownership for younger, first-time American buyers as well as seniors hoping to age-in-place.”
The majority of FHA-insured condo buyers have never owned a home before. HUD estimates that there will be an additional 20,000 to 60,000 condos per year could become eligible for FHA financing.
- Lenders are able to do single-unit approval for existing condos that are not in an approved development at 90% LTV. The borrower must have 10% down.
- Unit is at least one-year old or is already occupied
- Not in a project that has been denied, banned or blocked by the FHA already. (It can be an expired project or not appear at all, but not a Rejected project)
- The project has to have five units or more
- 50% or more owner-occupancy percentage (If we can get the project approved it’s 35%, but on a spot loan it’s 50%)
- 10% or less FHA concentration (no more than 10% of the properties already have FHA loans)
- No manufactured homes
- No houseboats
- Is not part of an unapproved phase of a condo project that has approved phases already
- No cooperative ownership
- No condo hotels or hotel arrangements
- No rent pooling agreements
- No timeshares
- No multi family condo units
- No care facilities
- Not in a Coastal-Barrier Resources System (coastal areas where new construction is no longer allowed)
Disclaimer: We are not affiliated with the Department of Housing and Urban Development or the Federal Housing Administration in any way. The information above is for educational purposes only and does not constitute official policy. To learn more about these changes, refer to the HUD website.