FHA Guidelines For Condos Soon to Change
Posted by Hamid Grinage on Thursday, September 20th, 2012 at 2:16pm.For the past several years, the only way to purchase the majority of condos and townhomes in Oakland or surrounding cities has been with conventional financing. This is because a few years ago the FHA (Federal Housing Administration) adjusted it's guidelines for condo developments which made it pretty much impossible to for 90% of the condos and townhomes on the market to be financed with FHA.
Because FHA loans are insured by the government, there are more strict guidelines for the developments to adhere to..which means there will be less units available that can be financed. Luckily, the FHA recently announced that some changes are coming to the guidelines, which will allow many more developments to become approved for Fha financing. This is a welcome development, because many buyers are approved for FHA because of the lower down payment requirement. This change will open up more properties to those who are approved for FHA, and will help our housing recovery even more.
The changes have to do with the percentage of owner occupants vs. leased units, as well as HOA delinquency rates. Prior to the collapse of the market starting in 2007, we rarely saw problems with condo associations like we have been seeing today. However when you think about how many short sales and foreclosures there have been over the past several years, it's easy to see why many of the condo developments fell out of the range of FHA guidelines. This also prevented many condos from being purchased with any type of financing, FHA or not.
When it comes to financing a condo, one of the most critical issues is the Hoa delinquency rate. When the Hoa delinquency rate (percentage of owners who are delinquent on monthly Hoa dues) rises to 15%, then most lenders will not lend on any unit in that development. So for example, if you wanted to buy a condo in a development that had 100 units then only 14 of the owners can be behind on Hoa dues. If it hits 15% or above, the lender will view this as an excessive risk and they will not approve the loan for the buyer. For this reason, it's very important for the lender to get the condo cert up front so they can verify all the pertinent info before the buyers shells out any money for an appraisal or inspections.
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