These are unprecedented times for financing in the residential condominium marketplace. Over the past recent months, the Federal Housing Administration (FHA) issued major changes to its guidelines on mortgage insurance requirements for condominium associations. Since FHA insured mortgages are playing an increasingly important role as a financing mechanism for those seeking to purchase or refinance condominium units, buyers need to be aware of the newest guideline revisions for obtaining FHA mortgage insurance for condominiums.
While traditionally, FHA-insured mortgages played a small role in the housing markets (approximately 5 percent in 2007), that number increased to roughly 20 percent of mortgage originations in 2008. As lenders continue to re-examine and tighten lending criteria, qualifying properties for FHA mortgage insurance provides potential buyers with an additional financing option and, thus, makes units in your condominium association marketable to a larger pool of potential buyers.
As of February 1, 2010, the newest guidelines have eliminated “spot loan” approval which previously enabled a buyer of a unit in a condominium building that was not an FHA approved condominium building to obtain FHA financing by meeting certain FHA criteria. Now, existing condominium buildings as a whole will need to meet FHA guidelines and be “FHA approved” in order for a buyer to obtain FHA financing. If an existing condominium building is not on the FHA approved list, the condominium association will need to go through the FHA certification process if it desires to have FHA certification.
Condominium buildings that were FHA approved between October 1, 2008, and December 7, 2009, must now be recertified. Recertified condominium buildings will expire within two years from the date of placement on the list of approved condominiums. Further participation in the program after this two-year period has expired will require recertification to determine that the project is still in compliance with the HUD’s owner-occupancy requirement and that no conditions currently exist which would present an unacceptable risk to FHA.