The Federal Housing Administration (FHA) has published a new rule that updates its condominium approval process.
The FHA's new rule introduces a single-unit approval process designed to make it easier for individual condominium units to become eligible for FHA-insured financing. Eligibility will be extended to an individual condominium unit located in a completed project that is not yet FHA approved. For condominium projects with 10 or more units, no more than 10 percent of individual condo units can be FHA-insured, while projects with fewer than 10 units may have no more than two FHA-insured units. The FHA will require that approved condominium projects have a minimum of 50 percent of the units occupied by owners for most projects, and the agency will only insure up to 50 percent of the total number of units in an approved condominium project.
The rule also extends the recertification requirement for approved condominium projects from two to three years, and it allows mixed-use projects with up to 35 percent of commercial space to be eligible for FHA insurance. The policy changes go into effect on Oct.15.
“Condominiums have increasingly become a source of affordable, sustainable homeownership for many families and it's critical that FHA be there to help them,” said U.S. Department of Housing & Urban Development (HUD) Secretary Ben Carson. “Today, we take an important step to open more doors to homeownership for younger, first-time American buyers as well as seniors hoping to age-in-place.”
Pete Mills, Senior Vice President for Residential Policy and Member Engagement at the Mortgage Bankers Association (MBA), praised the new rule.
“The condominium market is a critical gateway to affordable homeownership, and MBA applauds the steps FHA has taken to increase borrowers’ accessibility to quality housing. The new guidelines, many of which MBA advocated for, will create more financing options that will help first-time homebuyers and low-to-moderate income borrowers. It will also provide lenders with much-needed clarity to promote safe, sustainable, and affordable lending. MBA looks forward to continuing to work with HUD on policies and procedures that promote FHA’s mission.”
John Smaby, president of the National Association of Realtors (NAR), welcomed the FHA’s action.
“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 Smaby, a broker at Edina Realty in Edina, Minn. “It goes without saying that condominiums are often the most affordable option for first time homebuyers, small families and those in urban areas. 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.”