FHA Eases Burdensome Condo Financing Rules

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The biggest source of funding for low-down-payment condo mortgages, the Federal Housing Administration, has revamped controversial rules that caused thousands of building across the country to lose their eligibility for FHA financing.

  • The revised guidelines, which were issued Sept. 13 and took effect immediately, should make it easier for a large number of homeowner associations to seek certification by the FHA.  Without approval of an entire development, no individual unit can be financed or refinanced with an FHA mortgage.
  • The previous rules prohibited FHA insurance of units in buildings where more than 25 percent of the total floor space was used for commercial or nonresidential purposes.  Yet many condominiums in urban areas have lower floors devoted to retail stores and offices that generate revenues that help support the entire project.  The revised rules allow exceptions of up to 35 percent commercial use, and provide for additional case-by-case exceptions to 50 percent or higher.
  • The Community Associations Institute, the condo industry’s largest trade group, is predicting that the relaxed FHA rules will spark home sales and helps tens of thousands of condominium communities begin to recover from the housing slump.
  • The new rules also offer greater flexibility on investor ownership.  In existing developments, one or more investors are now allowed to own up to 50 percent of the total units provided that at least half of the units are owner-occupied.  The previous rule required that no more than 10 percent of units could be owned by a single investor.

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