More info on FHA condo rules

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

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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

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.

Rate update: My biggest fear

 Interest Rates, Residential Mortgage  Comments Off on Rate update: My biggest fear
Oct 092019

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By G. Steven Bray

Mortgage rates seem to be range-bound once more. After the decidedly weak manufacturing and services sector reports last week, that may be a bit of a surprise. The talking heads predictably spouted doom and gloom scenarios of a pending recession, but it seems like investors weren’t listening very closely. Rates initially retreated on the headlines, but since then have held steady.

So, what is likely to be the next source of inspiration for rates?

I think the most important economic data to watch at this point are the confidence measures. Business confidence has been lagging most of the year due to the ongoing trade dispute with China. However, consumer confidence has been sky high. That may be changing – possibly due to uncertainty created by the impeachment drama or the constant downbeat news from the press or maybe something else. My biggest fear is that we talk ourselves into a recession.

If consumers pull back, the economy could erode quickly, which would lead to much lower rates as we close the year. Given the political considerations – election next year – I suspect political operatives will do what they can to encourage that erosion. Thus, I put higher odds on lower rates before the end of the year.

I think the most important economic issue still is the trade dispute with China. Earlier in the year, I was betting on at least a partial resolution, which I said would lead to higher rates. However, given our current political dysfunction, I doubt China will want to deal. We may see a temporary reprieve from some of the sanctions, which could tickle rates higher for a short time, but I expect the dispute will continue to dampen both domestic and global growth, which would keep a lid on interest rates.