Nov. 8, 2016
WASHINGTON – Oct. 27, 2016 – The U.S. Department of Housing and Urban Development (HUD) released a mortgagee letter on Wednesday outlining the requirements for FHA-insured financing for condominium buyers if a development has an owner-occupancy ratio as low as 35 percent.
For FHA (Federal Housing Administration) funding to be approved, the letter says that the development must show it has "higher reserves, a low percentage of association dues in arrears, and evidence of long-term financial stability."
The 35 percent ratio was enacted into law this summer in NAR-backed legislation called "The Housing Opportunity Through Modernization Act," H.R. 3700. The law says the 35 percent ratio would become law automatically unless HUD released a different figure by Oct 28. In its release Wednesday – one day before the deadline – HUD announced that it would approve the 35 percent ratio as long as stricter conditions are met to ensure the newer loans don't put the FHA insurance fund at undue risk.
"HUD believes that it would be possible to protect the fund while allowing a lower owner-occupancy percentage if certain adjustments are made to enhance other requirements that affect the financial stability of the project," the agency said.
The letter is a step in the right direction, but the lower ratio should be available to all FHA-approved developments," says Tom Salomone, president of NAR and broker-owner of Real Estate II Inc. in Coral Springs, Florida. "NAR has been fighting for changes to FHA's condominium rules for years, and the mortgagee letter announced will bring some much-needed relief to the market. Condominiums will have a much easier time getting certified by FHA, and Realtors will have more options for clients looking to purchase a condo with an FHA mortgage."
Salomone calls the change a big win for NAR. "And while we believe all condominiums should have the rules applied to them equally, we believe FHA has heard the concerns of Realtors and is moving in the right direction," he adds.
NAR is hosting a live webcast on Friday at 2 p.m. ET to walk through all of the FHA condo financing changes. In addition to the owner-occupancy ratio, these include a maximum commercial-space ratio, "spot loans" (loans made for a condo purchase in a development that isn't yet FHA-approved) and recertification requirements for condo boards.
To register for NAR's webcast, visit the association's website.
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