It is always been extremely difficult if not almost impossible to get FHA financing in many condominium properties. This is because the Federal Housing Administration (FHA) has never fully supported the concept of condominium purchases. However, the FHA is going to make some temporary exceptions to the current rules.
Typical FHA rules for condominium financing provide that no one condominium in a condominium development can be eligible for financing unless the entire development has been FHA-certified. There are so many rules, regulations, and potential legal liabilities that many condo homeowners’ associations (HOAs) opt out of the process. They had the luxury of doing this when markets were strong several years ago.
However, in today’s tight lending market, more and more buyers are wishing they could get the relatively “looser” financing offered in an FHA loan. Their dream has come true – at least for the now. The FHA announced recently that its requirements for development-certification will be loosened for the foreseeable future. They will allow FHA certification on mixed-use developments – an increasingly popular building and residential trend – “provided that the commercial interests don’t harm the building’s residential component” and the leeway regarding delinquent association dues has been expanded so that no more than 15 percent of units can be more than 60 days delinquent on dues. Previously, that number was 30 days. Also, condo association boards will be less liable for FHA certification violations than previously, which will make more condo developments more open to getting certified.
Under previous versions of the FHA condominium rules, about 2,100 of the 25,000-of condo projects nationwide were certified as of late 2011. Consequently, the FHA was insuring very few condo unit loans (35,433) and unit owners were losing money and buyers because financing was so hard to obtain. The FHA and the Community Associations Institute (CAI) predict that the rule changes “will spark home sales and help tens of thousands of condominium communities begin to recover from the housing slump.” Let’s hope so…this will be a tremendous benefit to the current market.
Paddy Deighan J.D. Ph.D