FINALLY!!! FHA Relaxes Condominium Financing Rules!!

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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


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  1. Joe Jackson 09/25/2012 12:23 AM
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Diana Roca
Century 21 Camelot Realty Inc. - Cape Canaveral, FL

Here in Brevard County Florida, we won't hold our breathes.

Sep 25, 2012 11:14 PM #24
Goran Utvic
606 Homes LLC | Chicagoland Brokers Inc, Chicago IL 60656 - Chicago, IL
We Buy & Sell Chicago Houses Fast

Paddy that is great to hear and the 60 days behind on HOA dues is huge! Do you know if the guilines for HOA reserves has been lifted or changed at all?

Sep 25, 2012 11:14 PM #25
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

This is a start but not the full enchilada

Sep 25, 2012 11:17 PM #26
Brad Baylor
ERA Coup Agency - Milton, PA

Paddy - Now if FHA would just relax on the peeling paint on the detached garage, or insisting that a hand rail be installed on a gently sloping sidewalk with two steps on it... that would be even more exciting!

Sep 25, 2012 11:20 PM #27
Sylvie Stuart
Realty One Group Mountain Desert 928-600-2765 - Flagstaff, AZ
Home Buying, Home Selling and Investment - Flagsta
This has always been frustrating, especially for first time home buyers who go with FHA financing, and can't get into a condo. Good news!!
Sep 26, 2012 12:01 AM #28
Nan Jester
Exit Real Estate Gallery Jacksonville Beach, FL - Jacksonville Beach, FL
Realtor, Exit Real Estate Gallery

I run into this all of the time because there are quite a few condos in my area and MOST are not approved even though I have buyers for many. It would help buyers, the economy and the communities, as you stated.

Sep 26, 2012 12:13 AM #29
Dennis J. Zisa & Associates, Inc.
Dennis J. Zisa & Associates, Inc. - Camden, NJ
26 years in So. Jersey and the Greater Camden area

Thanks for this great update. Your report is comprehensive and to the point!

FHA is always more of a challenge to work with, but knowing the rules, makes it less so. 

Sep 26, 2012 01:14 AM #30
Kate Akerly
Halstead Property - Brooklyn, NY
Brooklyn Residential Sales and New Development

The process of getting a building FHA approved is way too cumbersome.  It's not just that the rules are too strict.  I actually think HUD made a poor choice raising the level of delinquincies permitted.  Further, the commercial space issue was rarely an issue. How many condo projects do you know that had 25% or more of the building made up of commercial space?  I work in Manhattan and Brooklyn (i.e. super urban, mixed-use) and it was RARELY a problem.  We did have an issue recently with that but it was only because it was an extremely small (4 unit) residential component on top of two stories of commercial.

I represent condo sponsors (developers) on a regular basis.  These are business people that make a living developing.  On a pre-development "team" we have the sponsor, their attorney who drafts their offering plan for submission to the Attorney General's office, and a preferred lender who will ultimately do the retail loans to buyers.  Even with all of those players on the team, we typically have to hire an "FHA consultant" who gets paid a few grand just to deal with the cumbersome paperwork required for approval.  It's THAT process that needs to be fixed. 

Oh, but I think it's great that the lessened the potential personal liability for condo board members.  That was a real deal killer for a lot of existing condominiums considering applying for approval.  

Sep 26, 2012 01:29 AM #31
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Paddy,

The catch 22 with many condo associations is that they have high delinquency rates, but buyers using FHA cannot buy the well-priced distressed homes and start providing one less delinquent home owner. Maddening at times. Luckily, once HUD gets them, they become exempt.

Sep 26, 2012 01:41 AM #32
Cynthia Larsen
Safe Haven Realty - Cotati, CA
Independent Broker Serving Sonoma County, CA

Delinquencies aside, the owner occupancy ratio is what is killing condo financing in my area. I have two listings where the owner ratio is 35%, most units are investments with college students as tenants. Cash only, folks!

Sep 26, 2012 02:44 AM #33
Paddy Deighan JD PhD - Vail, CO
Paddy Deighan J.D. Ph.D

Cynthia, I couldn't agree more!!

Sep 26, 2012 02:47 AM #34
Ric Mills
Keller Williams Southern Az - Tucson, AZ
Integrity, Honesty, and Vast Real Estate Knowledge

Finally they are seeing the light.  That is a big part of the business in the west and it has a two plus years of pent up inventory.  It can be a good market source.

Sep 26, 2012 03:26 AM #35
John DL Arendsen
Crest Backyard Homes "ADU" dealer & Contractor

It's about friggen time!! {:<)

Sep 26, 2012 04:04 AM #36
Tom Esposito
Alpharetta Home Solutions - Alpharetta, GA

Good info.  I knew it was coming but didn't have the details.  I certainly hope that this will help light a fire under the condo market.  In Atlanta, we didn't experience the real estate downturn until 2007 a full year after the slide elsewhere.  Now, many regions are experinceing a good growth spurt.  Not Atlanta.  We'll probably be a year behind everyone else.  So every improvement will be welcome. 

Sep 26, 2012 04:55 AM #37
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Paddy, we agree, it is about time FHA got with the program!

Sep 26, 2012 05:08 AM #38
Liane Thomas -Top Listing Agent
BROKER Allison James Estates & Homes BRE 01885684 - Corona, CA
Bringing you Home!

This is wonderful news for communities, like mine, with several condo complexes and a higher percentage of delinquent HOA accounts.

Sep 26, 2012 06:09 AM #39
Eric Salonga
The Salonga Brothers at Reed Realty - Ceres, CA
Your Key to the Central Valley

That's great that first time home buyers can purchase condos that were previously unavailable to them.

Sep 26, 2012 01:49 PM #40
Dan Derito
Success! Real Estate - Brockton, MA

Thank you for the update Paddy.   This may help some of those people who could otherwise afford to buy a chance to move out of apartments. 

Sep 26, 2012 09:45 PM #41
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA


We have had difficulty with FHA and condos in my area.  I am so happy to hear the new regulations for condo. Thanks

Sep 28, 2012 03:17 AM #42
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

This is great news for Condo communities and the market in general.  Thanks for the post.

Oct 02, 2012 08:34 AM #43
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