LESS-RESTRICTIVE FHA FINANCING RULES WILL BENEFIT MANY MIDDLE-INCOME CONDO BUYERS!

/in /by

article-dean-featured-080816

For many years during the Real Estate Boom of the 1990’s through the mid-2000’s, many middle-income and first-time condo buyers with acceptable credit, but a low down payment, used FHA Financing to purchase their first condo home.  Approval Rules were detailed, but buyers could find many condo projects to choose from at which this low-down-payment financing option would work.

With the Real Estate Market Shift beginning in 2008, in Chicago and elsewhere, thousands of FHA Condo Financing Opportunities were lost!  Approval restrictions on condo buildings got tighter.  Spot approval of individual buildings was phased out.  More stringent requirements on outside rentals, condo reserves and sales rules excluded many condominium complexes.

In it’s heyday, FHA Financing was used for between 80 and 90,000 condo loans each year.  Recently, however, according an article syndicated in the Chicago Tribune, FHA Loans dwindled to roughly one-quarter of that annual volume.  Some newly-created Conventional Financing Programs helped fill this gap, but approval requirements for these new loans were often more stringent than FHA Mortgages.

Recent FHA Approval requirements have become so stringent that approved condo projects diminished from nearly 152,000 nationally at its peak, to only 14,000 recently.  Condo Boards now have to renew their FHA Certification every two years, and many Condo Associations have opted out, letting their previous certifications expire.

New, Streamlined FHA Approval Rules, as a result of the recently passed House Bill 3700, would simplify the process, and could result in quick reinstatement of many previously-approved FHA Condo Developments.

Relaxed rules will likely include –

  • A reduction of the required Owner-Occupancy Ratio to 35%, from its current 50%.
  • Allowing Administrative Transfer Fees when units are sold.  This was tightly restricted.
  • Making approval of individual condo projects quicker, easier, and less expensive, with less required paperwork.
  • Allowing more flexibility in the amount of commercial space that can be part of a condo project.  This is especially important in urban areas, where such mixed-use projects are common, especially close to public transportation terminals.

Will the new, relaxed restrictions allow FHA to resurge?  Many think it will, as the red tape previously required for approval will be greatly lessened, and hundreds of condo project managers decide to re-up for FHA Approval due to the easier requirements.

Here, in Chicago, we feel a more streamlined FHA Condo Approval Process can only help the condo market here, especially in outlying neighborhoods, where more modestly-priced condos predominate.

Thoughts and comments?

DEAN MOSS & DEAN’S TEAM CHICAGO