FHA Condo Buyers Could Soon Have More Options
For the last few years, there haven’t been a lot of options for prospective condo buyers who were relying on FHA financing to fund their purchase.
After the housing downturn, FHA made serious changes to its approved condo list, removing thousands of condo complexes. Homeowners associations then had to complete an arduous process to get the condo building back on the list.
Now, FHA condo buyers are left with limited options. There just isn’t a big selection of condos to choose from.
But that could be poised to change thanks to a bill that just passed in the House of Representatives.
Condo buyers could soon have a greater selection of condos thanks to legislation working its way through Congress.
Overwhelming Support For FHA Condo Guideline Updates
The Housing Opportunity through Modernization Act (H.R. 3700), co-sponsored by Reps. Emanuel Cleaver, D-Mo., and Blaine Luetkemeyer, R-Mo., was approved by a unanimous vote of 427-0 this past February.
At the heart of the bill is a requirement that the Federal Housing Administration ease up its restrictions, which have essentially kept FHA buyers out of the condo market.
Assuming it passes in the Senate and is signed by President Obama after receiving overwhelming bipartisan support in the House, housing experts predict better buying and selling opportunities in the condominium space.
New Law Would Spur Condo Ownership
Because of a complex and costly certification and re-certification process, only about 10 percent of U.S. condo developments are currently FHA-approved.
Add to that the fact that individual unit owners have been unable to sell to buyers using FHA mortgages, and it’s no wonder why the total FHA loan condo purchases was just 22,000 in 2014 (down from 80,000+ a few years earlier).
What’s more is that not being able to accept offers from FHA-approved buyers has made it difficult for sellers in uncertified buildings to get the best value for their condos.
What will change:
- The certification process will be revamped so it’s not as repellant to condo associations as it is now.
- The current 50 percent minimum owner-occupancy ratio is responsible for shutting out a lot of otherwise eligible condo associations, so that will be lowered to a more inclusive 35 percent.
- As it stands now, FHA does not allow condo associations to collect transfer fees. That restriction will go away.
How The New Law Would Help Condo Buyers
Opening up the market for prospective condo buyers who are going the FHA loan route, is a win all around. “There is tremendous demand for affordable housing, and H.R. 3700 offers fresh opportunities for creditworthy borrowers to become homeowners when they choose to,” said National Association of Realtors President Tom Salomone in a press statement.
The whole point of FHA is to remove barriers to home ownership for people who have lower incomes, minimal savings, and/or less-than-stellar credit scores.
Yet it hasn’t been an option for the vast majority of people purchasing condos, which is often the only affordable real estate for first-time buyers, minorities, and non-wealthy Americans. In fact, as of August 2015, only 2.8 percent of FHA loans were for condo purchases, according to The Washington Post.
As a letter from the U.S. Department of Housing and Urban Development states, increasing the pool of condominium projects eligible for FHA approval will increase affordable housing options for first-time and low to moderate income homebuyers.
If the bill does its job – that is, encourage condo associations to seek certification to become FHA-approved – buyers will have a bigger selection of condos to consider.
With more condos to choose from, the number of interested buyers will likely increase. And, with more qualified buyers on the prowl, that could influence more sellers to put their condos up for sale.
Next Steps For Condo Shoppers
Support for the bill is a sign of progress, but it will take some time for major changes in the condo housing market to begin rolling out. If you’re someone who is thinking about purchasing a condo in the coming months, starting your research now is still a good idea.
There are many FHA-approved condos available today. It is very possible you could find the right condo to buy even before the new law rolls out.
Request a mortgage rate quote which will also come with a pre-approval letter that you can show to your real estate agent. From there, you can start looking for your perfect condo.