The Federal Housing Administration (FHA), which insures mortgages made by private lenders and banks, will ease condo financing regulations to open up homeownership for more first-time buyers, effective October 15, reports Yahoo! Finance. The move will help qualified homebuyers obtain low-interest-rate loans and will allow smaller down payments for home purchases. The legislation will also help condo owners who want to refinance or apply for a reverse mortgage by giving them more options.
Back in 2008, as a result of the Great Recession, the FHA stopped allowing single-unit approvals for home financing. If a condo development’s leadership did not want to go through the arduous FHA approval process, individual condo owners could not receive FHA funding, according to Orest Tomaselli, chief executive officer of National Condo Advisors, LLC. Under the new rule, individual condo unit owners can now apply for federal mortgage insurance even if the condo association or developer has not applied for funding.
As Yahoo! Finance reports, condo developments will benefit from the legislative changes also. Commercial space will no longer make them ineligible for FHA backing, as long as it makes up less than 35% of the development’s floor area. And recertification for FHA-backed condominiums is extended from two-year intervals to every three years. However, only 10% of units, or up to two units if the development has fewer than 10 total, can be financed to receive backing.
Despite the change, entire condo developments must meet certain requirements for a single unit to be approved, and the FHA has not issued specific guidelines on oversight for the process, according to Yahoo! “If a lender does lend with a single-unit approval and the building is not compliant, they [the lender] may be required to re-purchase the loan,” Tomaselli said.
Nevertheless, there is hope that the new rules will give first-time homebuyers more options. David Barnhart, VP of condominium management at Chicago-based firm The Habitat Company predicts that “These changes open the door tremendously for first-time homebuyers, with enhancements that will make funding more available.”