It can be tough to find a condo building that is approved for FHA financing.
But that’s just what many first time homebuyers are trying to do.
Condominiums are a less expensive option for hopeful homebuyers trying to break into the housing market.
According to the National Association of Realtors® the median condo price in October 2015 was $207,000 compared to $221,000 for single family homes.
Combine low prices with FHA’s low 3.5% down minimum requirement, and condos are a homebuyer’s dream.
But since 2010, FHA has severely limited the number of condo projects that are approved for financing. So even if a buyer is pre-approved for an FHA loan, he or she must jump through another hoop: finding a condo building that has passed FHA’s rigorous certification process.
Thanks to recent changes at FHA, finding an approved condo unit might become a lot easier.
FHA Changes Owner Occupancy Rule
In November 2015, FHA rolled back one of the most controversial requirements for condo certification.
Prior to the change, at least 50 percent of the units in the building had to be occupied “owners”. That means units owned as a second/vacation home or rented out did not count toward the total.
Now, FHA will allow units owned as second homes to be counted toward the owner-occupied total.
This is how this change could play out in real life.
A condo building has 100 units. Forty unit owners live there full time. Twenty units are owned as second homes. The owners live in the units when they are on vacation or in town for business. Another forty are rented out by the owners.
Before the change, this condo complex could not be approved for FHA financing. FHA would consider only 40 percent of the units owner occupied. The homeowners association might submit an FHA certification that meets requirements on all other points. Still, FHA would not approve the building for financing.
Under the new rules, 60% of the units are considered owner occupied: forty units in which the owners live full time, and twenty units in which the owners live part of the year.
FHA buyers could now buy a unit in the building. Unit owners could sell to FHA buyers.
More Condo Projects Available
In addition to the owner occupancy changes, FHA improved two additional roadblocks to condo approval:
There will be an easier process in place to re-certify condo projects. Condos already on the FHA approved condo list must re-certify every two years. Many projects fall off the list each year due to grueling re-certification procedures. Now, that burden is eased somewhat.
FHA will accept more types of master condo insurance. The condo project must prove it has adequate insurance to replace all units in case of fire or other disasters. Now FHA will accept state-run plans, policies that cover multiple complexes, and other non-standard master condo insurance policies.
In short, more condos will be able to get on and stay on the FHA approved list. FHA buyers will have a much bigger selection of condo buildings to choose from.
What it means for FHA Homebuyers
FHA has been the loan of choice for many first-time homebuyers since the program started in the 1930s. The program is lenient on credit scores and only requires $3,500 in down payment for every $100,000 borrowed.
Many homeowners would still be renters if not for the FHA loan program.
But many people still can’t qualify for a single family home using an FHA loan. Prices for free-standing structures are out of reach in many metro areas.
More available condos means these buyers can become homeowners sooner. They won’t have to wait years until their down payment and finances are adequate for a sky-high price tag.
The FHA changes also mean buyers have access to a wider variety of condos. Buyers won’t have to settle for a lower quality condo simply because their preferred complex is not approved for FHA financing.
Homebuyers who have been approved for FHA in the past but could not find a condo to buy should try again. Chances are that newly-approved condo buildings are available.
Apply to Buy an FHA Condo
Mortgage rates are low and prices for condos are affordable. Condominiums are the perfect way to start a life of homeownership.
Many people buy a condo then move up to a single family home a few years later. These buyers often keep their condo as an investment property as they upsize their home.
Whatever your long term plan, it’s a good time to see if you qualify to buy a condo with an FHA loan.