Condominiums are often the first step on the housing ladder for first-time homebuyers. They are also an affordable and desirable option for singles, young families, and older folks looking to downsize or escape the property maintenance responsibilities of single family homes.
The market for condos and townhomes is strong.
But financing options may exclude those homebuyers wanting to use an FHA loan that allows lower FICO scores and down payments of 3.5 percent on a home purchase. Currently less than 10 percent of all condos have FHA approval according to the Community Association Institute.
In the past, FHA required 80 percent owner occupancy in the community. It was FHA’s position that owner occupants serve to stabilize the financial viability of the projects and are less likely to default on their obligations to HOA associations than non-owner occupants.
In 2008, The Housing and Economic Recovery Act lowered the necessary percentage of owner occupied units to 50 percent, and it has remained at that level until now.
In October, FHA proposed new regulations governing the approval process for condominium projects, lowering the percentage of owner occupied units to as low as 35 percent if certain requirements are met.
The new guidelines allow projects with a minimum of 35 percent owner occupied units to be approved for FHA financing if three years of financial documents from the homeowners association are submitted that show funding for reserves in an account representing at least 20 percent of the budget, and no more than 10 percent of the total units in arrears (more than 60 days late) on their HOA fee payments. Applications must be submitted for processing and review by HUD.
What does this mean for condominium buyers and sellers?
Sellers can increase the value and demand for their properties by checking to see if the project is currently approved for FHA financing. Condo projects must recertify every three years to stay on the list.
FHA approval benefits all owners in the community.
If you are planning to sell in the near future, start now to allow time for the approval process to be completed, and if successful, you can market your property to a wider pool of potential homebuyers.
Adriana Donofrio Podley Properties Glendora (626) 926-9700 adrianad@podley.com
