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FHA Lowers Owner-Occupancy Requirements on Condos

Phil Hall
Oct 26, 2016
The Federal Housing Administration (FHA) has issued a mortgagee letter that lowers the owner-occupancy requirement on condominiums from 50 percent to 35 percent

The Federal Housing Administration (FHA) has issued a mortgagee letter that lowers the owner-occupancy requirement on condominiums from 50 percent to 35 percent.

“Analysis of FHA’s insured condominium portfolio over the past few years indicates that condominium loans have a lower default rate than other FHA programs, which FHA attributes, in part, to its project-wide owner occupancy requirements,” said the agency in its letter, adding that it is possible to protect the Mutual Mortgage Insurance Fund (MMIF) while allowing lower owner-occupancy percentages “if certain adjustments are made to enhance other requirements that affect the financial stability of the project.”

The FHA also cited Department of Housing and Urban Development data that determined “higher reserves, a low percentage of association dues in arrears, and evidence of long-term financial stability (as evidenced by financial documents) enable a lower occupancy percentage without unduly increasing risk to the MMIF” as support for its new requirement, which goes into immediate effect.

Tom Salomone, president of the National Association of Realtors (NAR), welcomed the mortgagee letter as offering “some much-needed relief to the market.”

“Condominiums will have a much easier time getting certified by FHA, and Realtors will have more options for clients looking to purchase a condo with an FHA mortgage,” said Salomone, whose organization lobbied aggressively for the change.

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