Starting October 15, 2019, the FHA will make it easier to get FHA loan approvals for condos by allowing “spot approvals,” according to their changed eligibility requirements. As a result, an estimated additional 20,000 to 60,000 condo units per year will be eligible for FHA financing.
“Spot approvals” are the practice of getting single-units approved for FHA financing within unapproved condo developments, which had been removed from FHA’s guidelines in 2010. The added flexibility is aimed to promote affordability and sustainable homeownership for qualified first-time buyers.
How are the new FHA Loan condo rules different for condo purchases?
For the past decade, you’d be hard-pressed to get an FHA loan approved for a condo. Currently, only 6.5% of condo developments in the U.S. are approved for FHA financing. But this had less to do with individual homebuyers and more to do with a condo development’s HOA.
HUD created a long list of requirements for a condo unit to qualify for FHA financing, which placed a heavy burden on the HOA’s financial well-being and documentation being in order. Although the goal was to protect each condo unit’s property value against any of the HOA’s issues, the review and approval of the HOA’s documentation and financing cost significant money and time. In addition, the HOA would have to be re-certified every two years. Due to all these complexities, you rarely would find condo units with FHA-insured financing.
But with the new rules starting in October, you will be able to get a “spot approval” on a condo unit within an unapproved condo complex and by-pass the previous requirements.
How do "spot approvals" help first-time homebuyers?
By allowing “spot approvals” again, thousands of additional condo developments will be eligible for FHA financing. For homebuyers, this allows easier financing since FHA requires a minimum down payment of only 3.5% - and that means more homes will be available to you.
The new guidelines will also increase condo sales, which will improve condo home prices and keep them more stable.
What are the new FHA Loan restrictions for condos?
Although the new guidelines are significantly easier for both buyers and sellers to abide by, there are still rules that apply to condo developments:
Single-Unit Approvals - If a condominium project has ten or more units, no more than 10% of the individual condo units can be FHA financed. If a condominium project has less than ten units, only two can be FHA financed.
Minimum Owner-Occupancy Requirements - Approved condominium projects must have a minimum of 50% of the units occupied by owners for most projects.
FHA Insurance Concentration in Condominium Projects - FHA will only finance up to 50% of the total number of units in an approved condominium project.
Commercial/Nonresident Space Limits - The commercial/non-residential space within an approved condominium project cannot exceed 35% of the projects total floor area.
Don’t wait until October to get approved - take advantage of the changes now.
The new guidelines will not only make a larger number of homes available, but it will also draw in more home buyers. That means a more competitive market place.
The smartest thing you can do right now is getting pre-approved. If you have your finances in order before the new guidelines take effect, you’ll be several steps ahead of other buyers when you find the perfect place. You can get approved right now in as little as 15 minutes.
And don’t forget - you can download our new and free guide to buying a home for first-time buyers. The eBook not only provides insider advice from the people who approve your loan, but also maps out a game plan for the entire home purchase.