More info on FHA condo rules

 Loan Guidelines, Residential Mortgage  Comments Off on More info on FHA condo rules
Oct 212019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

I reported last week on the new FHA rules for approving a single condo unit in an otherwise ineligible complex, FHA’s replacement for the old spot approvals. At the time, I didn’t have many specifics. Now I do, so let’s look at what it takes to get a single-unit approval.

FHA considers the following characteristics for single-unit approvals:

  • At least 50% of the units in the complex must be owner-occupied, which includes second-homes that aren’t rented the majority of the year;
  • The HOA must have a 10% reserve account;
  • No more than 10% of the units may be owned by one person or entity;
  • The complex may be comprised of no more than 35% commercial space; and
  • No more than 15% of the units may be 60 days or more past due on their HOA dues.

And the really great thing is documentation of these characteristics generally is part of the standard buyer’s package the HOA provides to prospective buyers. With a single-unit approval, it’s the lender’s responsibility to make sure the complex complies with the rules, so the HOA doesn’t have to slog through FHA’s bureaucratic approval process.

Condos that receive single-unit approval are eligible for the same low down-payment options as other FHA loans, meaning a minimum down payment of 3.5%. The only exception to this is if the buyer’s financial situation is such that the lender cannot get an automated approval, in which case the buyer must make a 10% down payment.

Single-unit approvals really shouldn’t significantly affect the amount of time needed to close an FHA loan. FHA has a special process for registering spot-approval loans that may take up to 3 days. (Registration for other FHA loans typically is instantaneous.) However, this registration process is during the time when the buyer typically is gathering financial documents. Once FHA issues the “case number,” it’s the lender’s responsibility to make sure the condo qualifies.

FHA makes it easier to buy a condo

 Loan Guidelines, Residential Mortgage  Comments Off on FHA makes it easier to buy a condo
Oct 122019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Currently, in order for a homebuyer to use an FHA loan to purchase a condo, the condominium project is subject to an approval process. The process is rather bureaucratic and takes time, AND it must be repeated every two years. Condo developers may muddle through the process to get units sold initially, but it seems few renew their approvals once the condo project is complete. If the project doesn’t have a current approval, a homebuyer may not use an FHA loan to purchase a unit in that project.

Many years ago, FHA would approve a single-unit in an otherwise illegible condo project – so called “spot approvals” – but FHA eliminated that option after the financial crisis.

I guess it’s a case of deja vu all over again because spot approvals are back. Apparently, the feds have realized that preventing FHA homebuyers from considering condos was exacerbating the housing inventory problem.

The new single-unit approval guidelines have a few limitations:

  • the condo project can’t have ineligible characteristics, like a rental desk;
  • the project must consist of at least 5 units;
  • it must be occupied or have been issued a certificate of occupancy for at least one year; and
  • no more than 10% of the units can have single-unit approvals.

The new guidelines go into effect on the 15th, so start shopping.

Could spot condo approval return for FHA?

 Owner-occupied, Regulations, Residential Mortgage  Comments Off on Could spot condo approval return for FHA?
Oct 242016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

We talked a couple weeks ago about the changes FHA adopted to make it easier to get FHA financing for condos. Unfortunately, the changes are temporary, but FHA is trying to rectify that by proposing new regulations that take these changes a step further and make them permanent.

The biggest news is FHA is proposing the reinstate spot approvals for condos. Typically, a condo project must be FHA-certified for its units to be eligible for FHA financing. A spot approval allows a lender to seek approval for a single unit in an otherwise uncertified project.

Another proposed change that’s receiving mixed reviews would establish a range within which FHA could set the minimum percentage of units that must be owner-occupied. Currently, the minimum is 50%. The proposed range is 25% to 75%. FHA says this would give it flexibility to respond to market conditions. Congress has suggested 35% is appropriate, and the housing industry would prefer the certainty of the fixed, lower number.

FHA also is proposing to establish a range for the maximum commercial space within a mixed-use development. The current maximum is 50%. The proposed range is 25% to 60%.

You can find the proposed rule on HUD’s Web site, hud.gov, and FHA invites your comments.