FHA to Make Financing Easier for Condo Owners
Announces long-awaited changes to eligibility requirements that include individual unit approval
August 14, 2019
The Federal Housing Administration has finally issued a long-awaited update to its condominium rules, announcing Wednesday that it will now allow individual unit approval and is taking other steps to loosen requirements that make these properties eligible for FHA financing.
Under the revised guidelines – which take effect Oct. 15, 2019 – an individual condo unit in a building of 10 units or more may be eligible for spot approval if no more than 10% of the units are FHA-insured. For units in buildings with fewer than 10 units, no more than two units can have FHA insurance.
The FHA is also extending the recertification deadline for approved condo projects from two to three years, and it will insure more mixed-use projects, or those with more commercial space, to be eligible, stating that approved projects can now have up to 35% of their square footage dedicated to non-residential use.
The agency also loosened restrictions on owner-occupancy rules, stating that eligible condo projects can now be just 50% owner-occupied.
It also said it will insure up to 50% of units in any given project.
The FHA said it expects the updated guidelines to qualify an estimated 20,000 to 60,000 more condo units per year for financing.
Currently, of the more than 150,000 condo projects across the country, only 6.5% are approved for FHA financing.
This is something the FHA is aiming to change with the updated guidelines, Department of Housing and Urban Development Secretary Ben Carson said on a call with reporters Wednesday.
“FHA is publishing a new rule in the Federal Register that we believe will offer significantly more options for individuals and families to buy a home, specifically the kind of home more and more people are looking for in order to achieve homeownership, and of course that is a condominium,” Carson said, adding that the new rules “will open many doors to buyers who have been waiting on the sidelines, waiting to become homeowners, waiting to share in the American Dream.”
FHA Commissioner Brian Montgomery said the agency has been working alongside stakeholders for three years to update its condo policies.
“It had become clear for many years that we needed to update our condo project approval regulations so that, while not exposing the agency to more risk, they are more flexible and less prescriptive and more reflective of the current market than the previous condominium project approval provisions,” Montgomery said on the press call.
The National Association of Realtors was among the of the first trade associations to applaud the agency for finally making the long-awaited move.
NAR said the changes, which it has championed for more than a decade, should help alleviate affordability issues for many prospective homebuyers.
“We are thrilled that Secretary Carson has taken this much-needed step to put the American Dream within reach for thousands of additional families,” said NAR President John Smaby.
“It goes without saying that condominiums are often the most affordable option for first-time homebuyers, small families and those in urban areas,” Smaby continued. “This ruling, which culminates years of collaboration between HUD and NAR, will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people.”
Specific changes regarding condo approvals can be viewed in an updated version of FHA’s Single Family Handbook, found here
FHA Loosens Condo Eligibility Requirements for Reverse Mortgages
Announces long-awaited changes that will make it easier for condo owners to obtain a HECM
August 14, 2019
The Federal Housing Administration has finally issued a long-awaited update to its condominium rules, announcing Wednesday that it will now allow individual unit approval and is taking other steps that will eliminate barriers for condo owners who want to take out a reverse mortgage.
Under the revised guidelines – which take effect Oct. 15, 2019 – an individual condo unit in a building of 10 units or more may be eligible for spot approval if no more than 10% of the units are FHA-insured. For units in buildings with fewer than 10 units, no more than two units can have FHA insurance.
The agency also loosened restrictions on owner-occupancy rules, stating that eligible condo projects can now be just 50% owner-occupied. And, it extended the recertification deadline for approved condo projects from two to three years.
Finally, the agency said the new rules will allow financing for more mixed-use projects, stating that approved projects can now have up to 35% of their square footage dedicated to non-residential use.
In all, the revised rule will drastically enhance a condo owner’s access to HECM financing, which has been limited since FHA did away with its spot approval process several years ago.
That meant that the only way to obtain a HECM on a condominium was to get FHA approval of the entire complex, a process that required a good deal of documentation, including proof of adequate insurance, confirmation that no one individual owned more than 10% of the complex, evidence of sufficient cash reserves, and verification that at least 50% of the units were owner-occupied.
Oftentimes, borrowers and their originators faced resistance from condo associations that didn’t want to go through the hassle of obtaining FHA approval.
Now, under the new "individual unit approval" rule, prospective borrowers won’t have to battle it out with their condo associations any longer.
With the updated guidelines in play, the FHA said it expects to qualify an estimated 20,000 to 60,000 more condo units a year for financing. Presumably, some of these will include HECMs.
Gisele Roget, deputy assistant secretary of single-family housing at FHA, said that while the agency does not have a target number as to how many more HECMs will be eligible under the new guidelines, it does expect it to open the door for a number of new borrowers.
“We recognize that many seniors live in condominium projects that were unable or unwilling to go through the process of FHA’ project approval, and so with this rule, by allowing HECM borrowers to utilize the single unit approval for HECMs, they will be able to age in place in condominium projects that do not have the overall FHA project approval,” Roget said on a call with reporters Wednesday.
Department of Housing and Urban Development Secretary Ben Carson added that the rule change is an important step to expanding access to financing for seniors and first-time buyers.
“This is part of a very important action this administration is taking to expand homeownership, which has been a very big focus, especially among families looking to buy their very first home and seniors also who are hoping to live independently and to age in place,” Carson said on the press call. “The changes have been a long time coming. I know a lot of people have been asking, ‘When is the condo rule coming?’ Well, the wait is over.”
Certainly, the reverse mortgage industry has been waiting, lobbying HUD over the years to lift its ban on spot approvals.
Earlier this year, the National Reverse Mortgage Lenders Association restated the need alongside the National Association of Realtors.
“NRMLA, and its members, strongly support HUD’s proposed changes in the area of condominium project approvals and recertifications,” NRMLA Executive Vice President Steve Irwin said. “We look forward to the publication of HUD’s new guidance so that our members might meet the pent-up demand of those seniors who own condominiums, yet need to leverage their home equity so they might effectively age in place.”
Now, it seems the wait is finally over.
Specific changes regarding condo approvals can be viewed in an updated version of FHA’s Single Family Handbook, found here
Reverse mortgages are loans offered to homeowners who are 62 or older who have equity in their homes. The loan programs allow borrowers to defer payment on the loans until they pass away, sell the home, or move out. Homeowners, however, remain responsible for the payment of taxes, insurance, maintenance, and other items. Nonpayment of these items can lead to a default under the loan terms and ultimate loss of the home. FHA insured reverse mortgages have an up front and ongoing cost; ask your loan officer for details. These materials are not from, nor approved by HUD, FHA, or any governing agency. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act (CRMLA).