Thursday, December 10, 2009

New FHA Rules for Condos

After reading a recent article that FHA condo loan will be allowed in communities for first right of refusal, and looking at the new FHA Condo requirements implemented in November 2009 it appears these requirements were very similar to Fannie Mae guidelines.  Hence, getting financing on condos is very tough.  If you are doing condo financing, please remember not all condos you see online or with your realtor you can actually close on for several reasons.  Not all of these issues whether a community is "financiable" can be researched until you are under contract on a property and both realtors and mortgage broker begin obtaining.  Here are some of the new rules implement:

  • Spot approval have been elimimated.  Previously,  if the condo community did not fit into the pre-determined guidelines or no FHA history in the community, then FHA approval could be reviewed on a case by case basis, this is no longer allowed.
  • Now 30% is now the max for allowed FHA mortgages in the community.  So if 50% of the units have FHA morgtages, that condo community will not qualify.  No limit previously.
  • In a brand new community, 50% of the units have to be sold before FHA will approve your loan. No limit previously.
  • 50% of condo units have to be owner occupied, which is down from 51%.
  • 10% of the condo budget has to be on reserve at all times.  This means either maintenance needs are delayed or fees increased or special assessment approved.
  • FHA is now allowing approvals in condo communities that have "first right of refusal".  Previously, FHA approvals were not allowed in these communties.
More changes proposed for 2010, which drastically impacts all FHA buyers no matter what type of property purchased.  FHA wants buyers to contribute more financially to the transaction.

• Raise the minimum down payment from its current 3.5% to 5%.
• Establish a minimum credit score from 620 to 660.
• Raise mortgage insurance premiums.
• Lower maximum seller paid contributions from 6% to 3%.
• Terminate the ability to roll the upfront mortgage insurance premium cost into the loan.