The U.S. Department of Housing and Urban Development (HUD) reports that 84% of Federal Housing Administration (FHA)-insured condo buyers have never owned a home before. According to the National Association of REALTORS®, HUD’s new FHA condominium loan policies that went into effect October 15, 2019, will help alleviate affordability restraints impacting markets across the country and result in more Americans becoming homeowners. Here is NAR’s assessment of these changes.
Single Unit Approval
Under the new rule, FHA borrowers can obtain Single Unit Approval on non-FHA approved condominium properties that meet the following requirements:
- At least five units
- A limited concentration of FHA-insured units
- At least 50% owner-occupancy; and
- A maximum of 35% commercial space.
HUD increased the certification period for FHA condominium properties from two to three years, with an additional six-month grace period after the certification end-date to submit re-certification materials. Condominium associations are still able to submit an updated re-certification package rather than the full certification package each time.
HUD increased the commercial space allowed in an FHA-approved condominium property from 25% to 35% and will allow exceptions up to 49%. HUD has the discretion to issue mortgagee letters to change the allowable commercial space to be within 25% and 55%, if necessary.
FHA will require approved condominium projects to have a minimum of 50% of the units occupied by owners for most projects. For properties that are over 12 months old with less than 10% of their units in arrears, HUD may approve an owner-occupancy level as low as 35%. Under the new rule, HUD has the ability to establish a different owner-occupancy level by mortgagee letter between 30% and 75%.
FHA will only insure up to 50% of the total number of units in an approved condominium project. HUD now has the ability to establish a different FHA concentration level by mortgagee letter between 25% and 75% to allow for a quicker response to changes in the real estate market.
Single Investor Ownership
A single investor in an FHA-approved property can own up to 10% of individual units in condominium properties with more than 20 units. For properties with less than 20 units, a single investor may own no more than one unit. For single unit approval, a single investor may own no more than 10% of the units in properties with 20 or more units and no more than one unit in a property with less than 20 units.