FHA Condo Approvals – Mortgagee Letter 11-22 FHA Concentration Limits
As mentioned in a previous article, the recent release of HUD’s Mortgagee Letter ML11-22 has been extremely beneficial even though it tightened up some of the previous guidance provided by HUD for condominium project approvals.
In 2009, HUD’s Mortgagee Letter 09-46A temporarily increased the FHA concentration limit in a project from 30% to 50% with exceptions to allow for up to 100% FHA concentration. This limit was to sunset on December 31, 2010. It was then extended temporarily until June 30, 2011 via Mortgagee Letter 11-03 on January 5, 2011.
This new Mortgagee Letter ML11-22 has made the 50% concentration limit and the exception for 100% concentration permanent. Well, for the time being…
Once the FHA concentration in a project reaches 50%, no new FHA loans will be allowed within the project. However, exceptions can be granted that allows FHA case numbers to be issued once the project reaches the 50% concentration limit. In order for exceptions to be granted, ALL of the following must apply to a condominium project:
- The project must have at least 4 units
- The project must be 100% complete and has been completed for one year
- 100% of the units are sold and no one entity owns more than 10% of the units**
- The project’s budget provides for the funding of a reserve account equal to at least 10% of the annual budget
- Voting control has transferred to the unit owners
- The owner-occupancy ratio is at least 50%
**Exceptions for the 10% rule: (1) if the project is less than 10 units, no one entity may own more than 1 unit; (2) Federal, State and qualified non-profit programs may own more than 10% of the units provided the program is designed to assist low- and moderate-income buyers and renters; and (3) units owned by investors in a project in which the investor lives are not included in the 10% calculation.
The 100% concentration exception terminates with the expiration of the project’s approval. Unless HUD changes this with the issuance of another Mortgagee Letter, it can be assumed that exceptions will continue to be granted once the project is recertified and it continues to meet the requirements as listed above.
The potential for 50% FHA concentration is tremendously beneficial to condominium projects as it makes available more qualified buyers to purchase within a project. FHA financing is easier to obtain than conventional financing in many cases so the availability of FHA financing is of utmost importance!
If your condominium project is not HUD approved and can be then it SHOULD BE! In this market, unit owners selling their units in your project are not finding qualified buyers when they could be if the project was approved.
[NOTE: As of today, 8/25/2014, the above information is still in effect.]