Saturday, November 17, 2012

FHA Loosens Condo Guidelines

Getting financing on a condo has been difficult to nearly impossible in past several years.  In response to market changes FHA has decided to loosen the reigns a bit on their guidelines until August 31, 2014.  When you finance a condo, the lender looks at 2 things; 1) the financial ability of the borrower and 2) the make up of the condo community.  Here is a list of changes:
  • The prior guidelines required that no more than 25% of the total floor area of the condominium be commercial, yet allowed exceptions for those with up to 35% of commercial space. FHA will now consider exceptions for condominiums that have up to 50% of commercial space upon providing substantial documentation, good cause, and proof that the condominium remains “primarily residential, homogenous with residential use and is free of adverse conditions to the occupants.”
  • The new guidelines increase the number of units that one investor/entity can own, at the time the application is submitted, from 10% to 50%, as long as 50% of the total number of units in the condominium have been conveyed or are under a bona fide contract for purchase to an owner-occupant.
  • Previously, a condominium would not be able to obtain FHA condo approval if more than 15% of all of the units were more than thirty days in arrears on their assessments. The new guidelines keep the 15% cap but increase the length of time in arrears to 60 days. However, while prior guidelines allowed exceptions if the delinquency rate was more than 15%, but less than 20%, the new guidelines provide that no exceptions will be granted.
  • Prior guidelines required management companies to have their own Fidelity Bond/Insurance naming the association as an obligee. However, now the management company can have their own insurance or the association can have a policy specifically naming the management company as an agent or insured, or that the association’s policy have a “Covered Employee” endorsement covering management personnel.
  • The new guidelines revise the Project Certification document to slightly relax the degree of guarantee confirmed by the person or entity applying for condominium approval.
This is step in the right direction, but lenders have a long way to go with lending money on condos.  Its unfortunate as condos provide many types of buyers that do not want the upkeep of a single family home.  There are ways to get condo financing;  if you are in the market for a condo please contact us for your options.