The Confusion Continues: New FHA Rules

Sometimes it’s just easiest to remember that (with one or two exceptions) there are no loans on condos right now.

For those interested in the detail, HUD just changed its condominium rules again for those seeking FHA approval, but I’m not sure it really changes anything for the average buyer.

HUD has relaxed its controversial requirement that at least fifty percent of the units in a condo project be sold before FHA could insure loans. Under the amended rule, FHA financing could be available in projects where at least 30 percent of the existing units have been sold.

That change could be big for some developers because many new-construction projects have had trouble pre-selling units and so most of them have not been able to meet the 50 percent requirement and in a classic Catch-22, FHA rules help prevent them from ever hitting that mark.

HUD has also relaxed its policy that no more than 30 percent of the units in a condo project could be financed with FHA-insured mortgages. The new maximum will be 50 percent.

Under certain circumstances, however, HUD said it would be willing to consider situations where the percentage of FHA financing on individual units is even higher, provided the project has been completed for at least a year, and the condo association’s operating budget provides significant reserves for capital improvements and deferred maintenance.

In its revised regulations, HUD stuck with a number of previously announced requirements that have drawn criticism from investors and developers, including that fifty percent of the units be owner-occupied. However, HUD says it will no count vacant or tenant-occupied, bank-owned as non-owner occupied units in the computation.

HUD labeled its latest condominium changes “temporary.” They take effect December 7 2009 and can only be counted on by investors and developers through December of 2010. Although they reserve the right to change their mind (again) whenever they please.

Conclusion? Most condos are still a cash only deals.

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