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.