WASHINGTON – On Oct. 15, the Fla. condo market could open up for first-time buyers after Oct. 15, 2019, after the Federal Housing Administration (FHA) issued new mortgage rules that will qualify more condo complexes and units for FHA loans.
The new FHA condominium approval regulation – and a new Condominium Project Approval section of the Single Family Housing Policy Handbook – are a comprehensive revision to FHA condominium project approval policy.
The policy released by the U.S. Department of Housing and Urban Development (HUD), which oversees FHA programs, was published in the Federal Register on Thursday, Aug. 16, and becomes official 60 days after publication.
Of special interest in Florida, which has a preponderance of condo units, is a new policy that will make some individual condominium units eligible for FHA mortgage insurance even if the condominium project isn’t FHA approved.
“Florida is ground zero when it comes to condominium sales but these markets have been impacted by certain federal rules,” says 2019 Florida Realtors President Eric Sain, a Realtor and district sales manager with Illustrated Properties in Palm Beach. “The changes being proposed by HUD will go a long way in allowing flexibility in these markets and help more hard-working Americans achieve the dream of homeownership.”
“It goes without saying that condominiums are often the most affordable option for first-time homebuyers, small families and those in urban areas,” says National Association of Realtors® (NAR) President John Smaby. “This ruling, which culminates years of collaboration between HUD and the National Association of Realtors® (NAR), will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people.”
The new rule, once effective:
- Introduces a new single-unit approval process to make it easier for individual condominium units to be eligible for FHA-insured financing
- Extends the recertification requirement for approved condominium projects from two to three years
- Allows more mixed-use projects to be eligible for FHA insurance
The majority (84%) of FHA-insured condo buyers have never owned a home before. While there are more than 150,000 condominium projects in the U.S., only 6.5% are approved to participate in FHA’s mortgage insurance programs. Under the new policy, FHA estimates that 20,000 to 60,000 condominium units could become eligible for FHA-insured financing every year.
“Florida Realtors has been working with NAR on this matter for some time now, and we are excited to see the results of this work,” says Sain. “Many congratulations to NAR for staying diligent on the issue and communicating with members at HUD to explain the problem and find sensible solutions.”
Single Family Policy Handbook guidance
To complement the FHA condo change, a new Single Family Handbook section provides the additional requirements lenders need to implement FHA’s new policy, including requirements for single-unit approvals, minimum owner occupancy requirements, and commercial/non-residential space limits.
After Oct. 15, FHA will insure mortgages for selected condominium units in projects that aren’t approved under current rules. An individual unit may be eligible for Single-Unit Approval under the following conditions:
- The individual condominium unit is located in a completed project that is not approved
- For condominium projects with 10 or more units, no more than 10% of individual condo units can be FHA-insured, and projects with fewer than 10 units may have no more than two FHA-insured units
Minimum owner-occupancy requirements
FHA will require that approved condominium projects have a minimum of 50% of the units occupied by owners for most projects.
FHA insurance concentration in condominium projects
FHA will only insure up to 50% of the total number of units in an approved condominium project.
Commercial/nonresidential space limits
FHA will require that the commercial/non-residential space within an approved condominium project not exceed 35% of the project’s total floor area.
NAR’s latest existing-home sales report recorded condo sales at a seasonally adjusted annual rate of 580,000 units – a decline of 3.3% from May and a 6.5% drop from the same time last year. Out of more than 8.7 million condo units nationwide, only 17,792 FHA condo loans have been originated in the past year.
“Condos are typically more affordable than a detached single-family home, but only a small fraction of condos are FHA-certified,” NAR Chief Economist Lawrence Yun said last month.