In a major step 3 years in the making, the Federal Housing Administration announced Wednesday that it shortly will back some mortgages on individual condominium units in condominium complexes that are not approved by the agency.
In the past, buyers generally could not get an FHA-backed loan on a condominium unit unless the whole complex had FHA approval, but just 6.5% of the approximately 150,000 condominium complexes in the country had that approval. In San Francisco, just 17 complexes have been approved.
The new approval procedure is part of a rule mix that will take effect Oct. 15. The objective is to increase owning a home among low-income, fraction and first-time buyers, and elders looking for to downsize. Often, these buyers see condos as an affordable option, but don’t have the down payment, credit score or other qualifications needed to get a conventional loan backed by Fannie Mae or Freddie Mac. They could qualify for an FHA loan, but can’t get one on a condominium due to the fact the project is not FHA-approved.
Under the new rules, they may be able to. For projects that are lacking FHA approval, the agency will insure up to 10% of individual units in projects with 10 or more units, and up to two units in projects with fewer than 10 units.
There still will be a restricted review of the project to make sure it has sufficient reserves and meets owner-occupancy and other requirements.
Generally, the project would need at minimum 10% of the complex’s total monthly unit assessments in reserves, and would need at minimum 50% of the units occupied by owners. Those are the same requirements FHA imposes on entire complexes today.
The new rule, however, also makes changes to FHA’s approval procedure for entire complexes to make it more streamlined and flexible. For example, under the new rule, FHA could adjust its owner-occupancy requirement to anywhere between 30% and 75%.