Squeeze Play New FHA Loan Requirements

Tighter lending requirements for Federal Housing Administration (FHA)-backed mortgages for condos have put financial and administrative pressure on condos all over the country at a time when many are ill prepared for any new challenges.

The most onerous of the new requirements are mandated reserve fund contributions, a 15 percent limit on condo fees delinquencies, and the specification that the condominium itself obtain FHA approval—this resulting in reams of additional paperwork for community associations.

The new requirements aren’t mandatory and they don’t affect existing community associations directly, but they do affect the ability of owners to sell their units. FHA-backed loans have taken over the lion’s share in some markets because they allow modest 3.5 percent down payments, making them the only option for many first-time buyers and others without a lot of cash on hand.

Condos that don’t seek FHA-approval under the new guidelines could find themselves losing property values and community support, warned White Plains-based National Condo Advisors CEO Orest Tomaselli at the Cooperator's annual Co-op & Condo Expo earlier this spring.

“If there is no financing [for condo sales]," says Tomaselli, whose firm helps condos achieve FHA approval. "People start paying their maintenance [fees] late. People stop caring about the development because they can’t refinance. They can’t get out, they can’t sell their units, nobody can buy. It’s a problem."

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