New FHA Guidelines Could Change the Condo Market Forever Part II
I’ve waited a while to post a new blog about the importance of a FHA warranty on a condo. There has been many changes which required some review before I posted the updates. You can read more about this on my original blog post here.
HUD (Department of Housing and Urband Development) recognized the need adjust the guidelines after setting announcing the end of FHA spot check approval process. The original October 1st, 2009 deadline was extended until November 2nd, 2009, then December 7th, 2009 and a final extension to February 1st, 2010. More importantly, HUD released a temporary set of guidelines that will make it easier for entire condo communities to obtain their FHA warranty! I’ve reviewed the details and I admit, HUD did a good job on this.
On November 6th, HUD released two new condo guidelines. The first set (2009-46A) is their temporary guidelines take affect on December 7th, 2009 and expire December 31st, 2010 include extending the spot check process through February 1st, 2010 as well as a lenient project approval process. The second set of guidelines 2009-46B) are stricter guidelines that will replace the lenient guidelines that will be in place for 2010.
Before I dive into the details, I want to first press some urgency here. First, if you’ve given up on a spot check transaction, the last extension allows you to do start a spot check transaction as late as February 1st, 2010. You only need to have a FHA case number issued which is typically done at the beginning of the transaction. This means you can close after February 1st, 2010 as long as your lender has begun the process and has at least ordered the FHA case number. As a quick reminder, spot check FHA transactions are FHA loans issued on condos that do not have a FHA warranty.
Second, it’s very, very, very important that all condo communities who do not have a FHA warranty do everything they can to obtain a warranty during 2010 while the guidlines are more lenient. Did I say it’s important? Let me say it one more time…IT’S IMPORTANT! I can’t stress this enough, get your warranty! Many condo projects are a form of affordable housing which is commonly sold to first time home buyers. FHA represents approximately 50% of the financing for first time home buyers and more move-up buyers are using FHA . If the project does not have a warranty, you are eliminating nearly 50% of all the first time home buyers from buying your condo and any other home buyer who was planning on using FHA financing to buy. There is a reason HUD extended the spot check deadline 3 times and made a temporary, lenient set of guidelines.
Okay, let’s take a look at the key changes to the temporary guidelines. For anybody who has attempted to get their condo project approved and was denied, look at the reasons why and see if the new guidelines fit your community.
TEMPORARY GUIDELINE CHANGES
- Owner occupied units is being decreased from 50% to 30% for pre-sale condos. This means only 30% of the units need to be pre-sold by the homeowner and the rest can be rented. This is easily the biggest change and will help builders move more condo units (revised)
- FHA concentration is increased from 30% to 50% with a provision that can be as high as 100% . FHA concentration is the percentage of homes in the complex that can have FHA financing.
- Vacant and tenant occupied units do not count as rentals in the owner occupancy calculation. This is crucial because HUD used to count vacant units as rentals. These units are to be removed from the calculation all together. For example, if a project has 50 units and 2 are vacant, the project would need to 30% of the 48 occupied units to be occupied by the homeowners and not renters. For communities that have many vacant units, this is very helpful.
- One-year waiting period for condo conversions is eliminated.
PERMANENT GUIDELINE CHANGES
- Owner occupied units will increase to 50% from 30%.
- FHA concentration will decrease to 30% from 50%.
- One-year waiting period for condo conversions remains eliminated.
- Homeowners must obtain HO-6 Walls-in insurance
There’s many other guideline changes but the ones listed above should make the largest impact.
For a complete guide of both sets of guidelines and details, you can download my cobalt_fha_condo_booklet.