The clock has been ticking for condo buyers who plan to use an FHA loan to fund their condo purchases. Effective December 7, all condominium complexes will lose FHA approval. New applications for FHA approval must be submitted. Until new approvals are granted by the Federal Housing Administration, no new FHA loans will be available for condo purchases.
In order for a condominium complex to obtain FHA approval, the complex must provide evidence that it complies with the current FHA guidelines. In June 2009 FHA issued new guidelines that were to take effect October 1, 2009. The new guidelines would have made thousands of previously FHA-approved condo complexes ineligible for FHA financing. The already tight lending market was to become even tighter for borrowers purchasing condominiums with FHA insured loans.
Concern that the new stringent rules and would further cripple the fragile real estate market led Congress to push back the effective date of the new guidelines until November 2. Under urging by the National Association of Realtors, the date was extended until December 7, 2009. Now, after further consideration, FHA has again modified its new guidelines for FHA approved condominium complexes.
Yesterday, at the NAR’s annual convention in San Diego, FHA Housing Commissioner Dave Stevens summarized the new FHA guidelines, which are intended to provide more lenience to address difficult market conditions. To summarize:
- The spot approval process has now been extended until February 1, 2010.
- 50% of the units in a condo project must be owner occupied but FHA now allows excluding vacant and bank-owned real estate units in the calculation of owner-occupancy ratios.
- The number of units in a condo project that can be financed with FHA loans has been increased from 30% to 50%.
- Condo complexes with 15% of owners that are past due on association fees will not be allowed FHA approval.
What does this mean? If you are a first time buyer and are considering purchasing a condominium, you have been given at least two more months to make a purchase. This is good news for prospective buyers of San Diego condos who want to take advantage of the first-time home buyer tax credit before April 2010. Although all condominium complexes will lose their FHA approval on December 7, extension of the “spot approval” process will still allow lenders to fund FHA loans on condo purchases through February 1, 2010.
After February 1, each individual condominium homeowner’s association (or a mortgage lender seeking to lend money on a condo purchases), will need to re-apply for FHA approval. This will take time. However, the new guidelines will eventually lead to FHA approval for thousands of condo complexes that would not have passed muster under the more restrictive guidelines. Specifically, eliminating vacant and bank-owned properties from the owner-occupancy ratios is a major victory for condo complexes that have suffered high rates of foreclosure.
For prospective home buyers who do not have a 20% down payment, FHA insured loans have become the only viable option, allowing purchases with as little as 3.5% down. Three years ago FHA loans were practically unheard of in San Diego. Today FHA loans account for more than half of all mortgages on San Diego homes. The low down payment requirement makes these loans particularly attractive to first-time home buyers, but FHA loans are available to finance any residential home mortgages up to $697,250. Along with the home buyer tax credit and low interest rates, you couldn’t ask for a better opportunity.