Within the last few years, here in Chicago, low and mid-priced condominiums have been the "jumping in" point for first-time homebuyers.

Why?

Condos are far less expensive than houses in the same area.  Responsibility for repairs are often shared with the condo association.  First-time buyers also typically have smaller families, and can get by with a smaller space.

And, of course, down payments are more affordable than they would be for a single-family home in the same neighborhood.

As recently as 2007, first-time condo buyers with less than the traditional 20% down payment had many financing options, ranging from government-backed loans, to very-high-leverage "piggy back" loans.  "Stated Income Loans," in which a buyer could close by merely stating his income - without backup - were often available.

Today, however, buyers with less than 20% down often have only one financing option - an FHA-Backed Loan.

Borrowing with FHA funding requires as little as 3.5% down.  Further, the borrower's FICO Credit Score for FHA can be a more-forgiving 620, versus the more stringent 720 score, sometimes greater, for conventional financing.

Here in Chicago, the majority of condo sales our Real Estate Team has closed in 2009 have involved FHA Financing.  Nationally, it is estimated that the percentage of all homes financed using FHA Funding is 25% - up from only 2% a few years ago, when more low-down loan options existed.

As reported by Syndicated Real Estate Reporter Don DeBat, in his Home Front blog and columns, new FHA Rules, effective November 2nd, could delay the process of loan approval, at least initially.  Gone will be the process of FHA Spot Approval, where an individual condo unit in a building can be approved for financing.  Also, every condo building that was certified FHA Approved longer than 2 years ago will have to be re-certified.

Theoretically, the process, long-term, would be streamlined.  FHA Direct Endorsement Lenders - large banks and Mortgage Brokers who have been certified to offer FHA Loans - can approve a subject condo building.  The timing for such approval, however, is yet to be seen.

Also, the long-standing prohibition against FHA Financing for condos in buildings where the Condo Association has a Right of First Refusal - where associations can exercise the right to purchase an individual unit for the same price and terms as a buyer under contract - is being lifted.  Here in Chicago, dozens of buildings not approvable for FHA for this reason alone will now qualify for such financing.

Bowing to a recessionary economy, where many condo units are in foreclosure, or distressed owners are behind in their condo assessments, the new FHA Rules require that no more than 15% of all units in a building or complex be more than 30 days late on their assessment payments.

Other FHA Financing Rules for condominiums -

- A minimum of 50% of the units in the building must be owner-occupied, not purchased as investments and rented to tenants.

- At least 50% of a the condos must be occupied or under contract prior to close for new condo developments.  (Previously, this number was 90%)

- No more than 25% of a the floor space of a building can be used for commercial purposes, rather than residential units.

- Depending on the building size, any single owner or entity cannot own more than 20% of the condo units in a building.

Our Team Lending Partners are aware of the rules, but are unsure as to the how lengthy the delays for approval of new FHA Loans will be.  As time passes, however, our lenders are confident approval will speed up, as more individual buildings receive approval for FHA Financing.

DEAN & DEAN'S TEAM CHICAGO