With an eye on the volatility of the condominium market, the Federal Housing Administration (FHA) has backed off some of the stingy new rules for condominium lending set to be implemented Dec. 7. After a meeting with the Mortgage Bankers Association last week, the FHA made the following changes to its June 12 condominium guidelines:
• Spot loan approvals can continue until Feb. 1, 2010. Spot approvals are performed on non-FHA approved projects on a loan by loan basis, and are a way to make FHA loans available to home buyers in well run condominium projects even if they haven’t gone through the full approval process.
• The FHA will allow a 50 % concentration of FHA loans – up from 30 %-- in condominium buildings, and well-qualified buildings can have up to 100 %.
• The pre-sale requirement has been reduced to 30 % of new projects. So only 30% of a new project must be sold-out before being approved for FHA loans.
• The reserve study requirement has been eliminated. The new guidelines mandated that all existing and new condominiums undertake a study of its capital reserve account. The study can be expensive and onerous, especially for smaller associations. The guidelines instead require that all condominium budgets provide for funding the reserve account up to at least 10% of the operating budget. This is much more workable.
The original implementation date for new FHA condominium rules was Nov. 1, but that date was pushed back to Dec. 7. The above rules, except the spot loan approval, are all labeled as “temporary,” effective through Dec. 30 – although the FHA reserves the right to extend that date. This is good news for condominium buyers, especially first timers. It’s nice to see a government agency actually listen to the market for a change. A copy of the new guidelines can be found here at FHA Condo Lending Guidelines
Reprinted from Attorney Richard D. Vetstein November 11, 2009