HUD Eases FHA Condo Financing Rules

The change should qualify more condo complexes for FHA loans. Florida buyers, perhaps more than any other state, will benefit from FHA’s new rule.

SAN DIEGO – November 13, 2015 – Federal Housing Administration (FHA) Principal Deputy Assistant Secretary Ed Golding announced changes to FHA condominium policies last night at the National Association of Realtors®(NAR) convention in San Diego.

Effective immediately, FHA will streamline the condominium recertification process and expand its definition of acceptable "owner-occupied" units to include second homes not owned by investors. The provisions expire in one year "until the agency can implement a more comprehensive condominium rule change."

The change should qualify more condo complexes for FHA loans. That, in turn, will give more buyers access to FHA low-downpayment mortgages.

The new rule:

1. Modifies the requirements for condominium project recertification
2. Revises the calculation of FHA's required owner-occupancy percentage
3. Expands eligible condominium project insurance coverages

Florida homebuyers, perhaps more than any other state, will benefit from FHA's new rule.

"This is going to be an amazing stimulus to the housing market for the first-time homeowner and entry-level housing buyer," says Frank Kowalski, president of Florida Realtors in 2005 and an insurance agent. "It's a catalyst for change and long overdue. Thousands of contracts could not use FHA financing, and buyers were forced to come up with 25 – even 30 percent downpayments."

Kowalski says FHA's rule change should help more than just first-time buyers, however. Condo financing problems also frustrated the move-up market – condo owners who want to make the move to single-family housing.

"It's difficult to sell an existing unit if you can't find a qualified buyer," Kowalski says. "A lot of people are frozen in place: Those in (a condo unit) can't get out; those out can't get in."

According to Golding, the just-announced FHA changes are in line with ones requested by NAR, which has been an advocate for reform. NAR cited problems with a lengthy and complex recertification process, burdensome owner-occupancy requirements, and the limits on acceptable property insurance.

One major benefit for Florida condo owners: the property insurance rule change. FHA will now accept Citizens Property Insurance coverage – the Florida-owned company and largest condo insurer in the state.

In addition, FHA changed the way it will view co-insurance clauses, which exist with most Florida condos. That change alone will help up to 85 percent of Florida's condo associations, according to Danielle Blake, the Miami Association of Realtors' government affairs director and a long-time advocate for FHA change.

According to Golding, insurance and recertification changes will take place immediately. Policy changes related to owner occupancy, commercial space percentage, FHA concentration and spot approvals would be addressed through formal rulemaking in the near future.

"Condos are often the most affordable option for homebuyers, especially first-time buyers, and making sure FHA financing is an option is important to supporting homeownership," says 2015 NAR President Chris Polychron.

HUD provides an overview of all changes in Mortgagee Letter 2015-27, which is posted online.

© 2015 Florida Realtors®  All rights reserved. Reprinted with permission.