New FHA Condo Rules Loosens Guidelines
Effective October 15th 2019, the new FHA condo rules for FHA approved condos will go into effect. This is a long awaited change that will open the condo market and will provide home buyers with greater flexibility in using FHA insured loans when shopping for a home.
Today, every condominium project must be FHA approved before any of the units within could be financed with an FHA loan. When the new FHA condo rules go into effect, the approval will not have to be at the project level. Each single unit for sale would follow the same approval process as a detached single family residence when the borrower applies for an FHA loan.
There are over 150,000 condo projects in the United States and only 6.5% of them are FHA approved. When the changes go into effect, it is estimated that an incremental 60,000 single condo units would be eligible for FHA insured financing.
Will Condo Projects Still Need an FHA Approval?
Condo projects can still apply for an approval which will also mean that all of the units within would be approved. However, this is no longer a requirement. Plus, the condominium projects today need to be certified every two years but under the new guidelines, that will be extended to three years.
Additional Benefits Resulting From the FHA Condo Rules Changes
Another change that will benefit condo approvals is the percentage owned by owner occupied tenants was 50% and under the new rule, the condominium project can be as low as 25% owner occupied. This is good news for areas where there are a lot of condos rented versus inhabited by the owners.
Finally, the cap for total square footage used for commercial purposes will have its cap moved from 50% to 60%. An example of this would be some stores below with the condo units for residential living above.
Will the FHA Condo Rules Changes Make Condos More Affordable?
The upcoming changes will absolutely make condos that today are NOT FHA eligible more affordable. It likely will not have an impact in areas where there are is an abundance of FHA approved condo projects.
Will the FHA Condo Rules Changes Impact Condominium Values?
This question will likely be debated among real estate professionals. Will making condos more affordable for those who need FHA financing to qualify drive prices up?
You would think that opening them up to a larger pool of borrowers could increase values. However, there are FHA loan limits in each county and it is possible that this change could have a negative impact depending upon the price point. Let us know your thoughts in the comments below.
FHA Approved Condos – A list of approved condos and the lenders who can finance them