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.