FHA is easing its strict condo financing rules and giving buyers a reason to celebrate
Good things come to those who wait, and if you're in the condo market, you've waited long enough.
The Federal Housing Administration has just revised its rules for financing condominiums — rules that have been so strict, the great majority of condos can’t qualify for FHA loans.
That means most condo buyers couldn’t take advantage of the low down payments and other benefits FHA loans can provide. (Here’s how to tell if an FHA loan is right for you.)
The catch for condos is that the FHA must certify certain aspects of the entire building or development before any unit can be financed or refinanced with an FHA loan.
Under the previous regulations, associations had a tougher time getting approved.
"The agency's previous rules were criticized as heavy-handed, costly and not in touch with the economic realities of some parts of the country," syndicated columnist Kenneth Harney recently wrote.
As usual, he’s absolutely right.
Those rules basically took the Federal Housing Administration out of the condominium game.
Only 2,100 of the estimated 25,000 condominium developments throughout the country eligible for unit financing were recertified late last year.
Harney notes that the FHA estimated that it would insure 110,000 unit loans during fiscal 2012, but they have fallen woefully short, insuring just 35,433 units during the first 10 months.
Not only is that bad for buyers and sellers, it's horrible for the national housing market.
That's why the new rules are such a breath of fresh air.
“This is excellent news for sellers, buyers, condominium communities and the housing market across the country,” says Thomas Skiba, chief executive officer of the Community Associations Institute, the condo industry's largest trade group.
Skiba believes it will spark home sales and help condos recover from the housing slump, and I'm optimistic as well.
The idea is that easing restrictions will allow more associations to become certified, which will stimulate more activity in the condo market and give the economy a boost.
Here's a short outline of the new guidelines:
- The language used to describe personal legal liability for homeowners association boards and officers has been revised and isn't as intimidating.
- Condo communities where no more than 15% of owners are 60 days late on association dues can be certified. Previously it was 30 days.
- Investors are now allowed to own up to 50% — instead of 10% — of the total units, if at least half are occupied by other owners.
- Up to 35% of space, increased from 25%, can be dedicated to commercial use (think of condo space above a Starbucks). It rises to 50% on a case-by-case basis.
- There are new, more hassle-free insurance rules for associations.
According to the agency, these rules are "temporary adjustments" in response to market conditions.
So, we'll have to wait and see whether the government sticks with them, whether it gets the FHA back in the condo finance game and whether that gives the housing market any kind of boost.
But this certainly seems like a step in the right direction.