Property Values, Loans at Risk HUD Tightens Guidelines in Condo Sales

 As of November 2, new lending guidelines from HUD mean that FHA loan  requirements will be significantly tightened for condominium sales.  

 The new requirements could have a profoundly negative effect on the ability to  sell or buy a condominium unit that requires FHA financing. It’s estimated that many—if not most—condo units will not meet the new guidelines, and unless they move quickly to  comply they could see their property values directly impacted.  

 The new guidelines represent a significant departure from the mortgage industry’s “glory days” circa 2005, when practically anyone who wanted to own a home could. At that  time, FHA loans had approximately a five percent market share.  

 Those days are long gone, as the subprime mortgage market no longer exists, and  Fannie Mae and Freddie Mac underwriting guidelines have tightened dramatically;  these underwriting guidelines are even stricter when financing a condominium  than when financing a detached, single-family house.  

 Today, FHA’s market share is close to 40 percent, with over 60 percent of those being  first-time homebuyers. These loans still allow a buyer to put 3.5 percent down,  regardless of whether their intended purchase is a condominium. For a  conventional Fannie Mae- or Freddie Mac-conforming loan, however, a buyer must  put down 15 percent of the purchase price in many areas. It is of the belief of  those of us in the industry that FHA’s market share will continue to grow as Fannie Mae and Freddie Mac continue to  adjust their underwriting guidelines.  

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