In today’s economy, many first-time home buyers find it challenging to make a hefty down payment towards a new home loan. Luckily, FHA financing is available for conforming loans (less than $417,000) with down payments as low as 3.5%.
Loans made by FHA (the Federal Housing Administration) haven’t always been applicable to every home on the market because of longstanding guidelines and restrictions. For example, if you wanted to sell your condo to a buyer ready to bring 3.5% down, that buyer couldn’t obtain an FHA loan if your condo bylaws gave the board the “right of first refusal.”
But now, FHA is making it easier to obtain approval for condos. They’re allowing lenders to determine project eligibility, review project documentation, and certify federal compliance for condo projects.
In accordance with the 2008 Housing and Economic Recovery Act (HERA), FHA is implementing a new approval process for condo projects to insure mortgages on individual units closed as of October 1, 2009.
Now, the right of first refusal is permitted - unless it violates discriminatory conduct under the Fair Housing Act. Eligible spheres include projects with 2 or more units carrying hazard, liability and flood insurance. For these projects, no more than 25% of the units can be used for commercial space – and no more than 10% of the units can be owned by more than one investor. Additionally, 50% of the units must be sold and owner-occupied. Projects listed as “Proposed / Under Construction,” “Existing Construction” or “Conversion” are also eligible.
Ineligible Projects include Condotels, Timeshares or Segmented Properties, Multi-Dwelling Units, and Commercial Properties.
So what does this mean for you?
As a buyer
Buying a home is a big investment - and saving for a down payment can be a tough proposition, especially when you include closing costs and tax escrows. FHA is making condo purchases with 3.5% down even easier. Look for FHA-approved buildings (or buildings with pending FHA approval) - and talk with your mortgage consultant to see if you qualify for a low-down payment loan through FHA.
As a seller
Your condo association or developer can work with a lender to get your building pre-approved for FHA loans. This allows for more flexible compensating financial factors for potential buyers (i.e. cash reserves, credit scores, etc.) and attracts more buyers, leads to more saleability, and greater home value appreciation.
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- FAQs on New Help for FHA Borrowers - September 17th, 2009
- Renovation Financing: What is a 203K loan? - September 15th, 2009
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- Categories: FHA Loans, Mortgage Types
Comments
2 Comments so far
Keane
Ken,
I’ve talked to a few Direct Endorsed lenders and it sounds like the liability for a lender to approve the project is close to $1,000,000 a project (if I remember correctly).
I worry that approving projects will be slow from HUD and the liability they’re passing down to the lenders who can insure the project is too high for any lender to do UNLESS the condo builder for a new project owns the mortgage company doing the warranty.
What do you think?
Ken Perlmutter
Keane, thanks for your thoughts on this.
It’s important to remember that with any guideline change, especially a guideline coming from FHA or another government entity, it takes time for systems and procedures to catch-up with the changes. Additionally, third-party agencies are answering the need for condo buildings and developments to get FHA approval. They charge a flat fee, and coordinate necessary steps, review documentation, submit file packages to FHA, and follow-up with the development contacts.