HUD Condominium Guidelines on FHA Loans
In this blog, we will discuss and cover HUD condominium guidelines on FHA loans. HUD, the parent of FHA, is the federal agency that creates and implements FHA condo guidelines. Condominiums are becoming increasingly popular. Many Millennials and seniors often opt to purchase a condo versus a single-family home due to less maintenance. Unfortunately, per HUD condominium guidelines on FHA loans, many borrowers who only qualified for FHA loans were blocked out of buying condominiums. This was due to the old HUD condominium guidelines on FHA loans where borrowers cannot qualify for a condo unit without the condo complex being HUD Approved. In the following sections of the guide on FHA condo guidelines, we will cover everything you need to know about buying a condominium with an FHA loan.
What Are FHA Spot Loans
In the past, HUD offered FHA Spot Loans, where a buyer can purchase a condo in a condo complex that was not HUD Approved. However, HUD eliminated the FHA Spot Loans. Many condominium associations did not renew their HUD-Approved status due to the expensive annual renewal fees as well as the massive amount of paperwork. HUD Announced the new updated HUD condominium guidelines on FHA loans.
Buying a Condominium versus a Single-Family Home with an FHA Loan
The U.S. Department of Housing and Urban Development (HUD) has specific guidelines for condominiums to be eligible for FHA loans. Here are some key HUD condominium guidelines for FHA loans:
HUD Condominium Guidelines on FHA Loans
Prior to HUD condominium guidelines update, the condominium project must be approved by HUD and included on its approved condo list. HUD reviews project documentation, budgets, and reserves. At least 50% of units must be owner-occupied principal residences or second homes (not investor units). Commercial Space Limits: No more than 25% of the project’s total floor area can be used commercially. The condo association must be fully approved and active, and adequate reserves must be maintained.
FHA Concentration Limits
HUD generally limits the concentration of FHA-insured units to 50% of the total units in a project. Delinquent Homeowner’s Fees: No more than 15% of units can be more than 60 days delinquent on homeowner’s association dues. The condominium project must have adequate hazard, flood, liability, and fidelity insurance coverage.
Special HUD Approval
Some ineligible condos may require a special approval process under HUD’s HRAP guidelines.
Condominium Project Questionnaires
Mortgage lenders require condo questionnaires or documentation confirming the project meets HUD’s guidelines. The purchased individual unit must comply with FHA property requirements and standards. These guidelines are in place to protect FHA borrowers from risky investments in condo projects that may have issues with finances, reserves, or legal compliance. HUD periodically updates its condominium project approval guidance.
Highlights of The Updated HUD Condominium Guidelines on FHA Loans
Condominium homebuyers can now qualify to purchase a condominium in a condo complex that is not HUD-Approved effective October 15th, 2019. The new HUD Condominium Guidelines allow for FHA spot approvals on non-HUD approved condomimium complex.
FHA condo spot approval means is HUD allow condominium units in a condominium complex that is not HUD approved eligible to qualify for an FHA condominium loan.
FHA loans require individual condominium units to be approved even though the whole condo complex is not HUD-Approved. This is great breaking news for condo buyers who only qualify for FHA loans and are interested in purchasing a condominium versus a single-family home. More and more home buyers are interested in buying a condo versus a single-family home. This includes Millennials and Seniors who are looking to downsize.
HUD Announcement on Easing FHA Condominium Guidelines
The United States Department of Housing and Urban Development (HUD), the parent of FHA, issued an announcement on the 2019 Updated HUD Condominium Guidelines on FHA Loans and its standards and policies on condominiums: The change of the HUD Condominium Guidelines will be a major plus for home buyers not to just rely on conventional loans when making a condo purchase. These new HUD Condominium Guidelines changes will permit certain condominiums to be eligible for FHA financing.
When Does The New HUD Condominium Guidelines Take Effect ON FHA Loans?
The New HUD Condominium Guidelines will be taking effect on October 15, 2019. Michael Gracz, the National Sales Manager of Gustan Cho Associates, says the following:
The new requirements and guidelines will be added to the “Condominium Project Approval” section of the Single-Family Housing Policy Handbook (also known as HUD Handbook 4000.1).
That’s the official policy guide for the Federal Housing Administration’s mortgage insurance program. According to HUD officials, the new condominium policy for FHA loans is part of a broader effort intended to reduce “regulatory barriers” that might exclude certain borrowers or home buyers from the real estate market. The full details regarding the new requirements for individual condo unit approval have been added to the Federal Register.
Benefits of The UPDATED HUD Condominium Guidelines on FHA Loans
There are many benefits to the UPDATED HUD condominium guidelines for condo buyers. Many condo complexes will become eligible without being HUD-approved. The new UPDATED HUD condominium guidelines will make it easier for individual condo units to be approved for FHA financing. If the non-approved condo project has 10 or more units, up to 10% of the condo units can be eligible for FHA financing.
To extend the 10% minimum, then the whole condo complex needs to be HUD-approved. Non-approved condo complexes with less than 10 condo units can only have two FHA-insured condo units.
HUD Certifications of HUD-approved condo complexes with been extended to a two to a three-year term. HUD will ease the eligibility requirements and guidelines on mixed-use residential/commercial housing projects. The top bullet points are some of the many new changes that will be revised on the HUD 4000.1 FHA Handbook.
Reason For Changes To HUD Condominium Guidelines on FHA Loans
The changes to HUD condominium guidelines were brought about due to help first-time homebuyers as well as Seniors. Many first-time homebuyers with very busy schedules do not have time for home maintenance. Many seniors often want to downsize from a single-family home to a condominium. former HUD Secretary Ben Carson Issued the following statement:
Condominiums have increasingly become a source of affordable, sustainable homeownership for many families … Today, we take an important step to open more doors to homeownership for younger, first-time American buyers as well as seniors hoping to age-in-place.
While the FHA loan program is not limited to first-time buyers, that group accounts for the majority of condo purchases that are financed through the government-backed loan program. Many FHA-insured condominium buyers have never owned a home before. In addition to helping first-time buyers, the new condo rules are expected to significantly increase the number of approved projects. There are more than 150,000 condominium projects located throughout the United States. However, as of summer 2019, only about 6.5% of them were approved to participate in the FHA loan program.
The Importance of FHA Condo Spot Approvals
HUD is estimating that an additional 30,000 to 60,000 condominium units would become eligible for FHA financing annually with the new HUD condominium guidelines changes. This change will also result in FHA getting a larger market share of the housing market. Condo buyers now can shop and compare FHA versus Conventional loans when shopping for a mortgage on a condominium unit. For more information about the contents of this article or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
