In a major step three years in the making, the Federal Housing Administration announced Monday that it soon will back some mortgages on individual condominium units in condominium complexes that are not approved by the agency.
In the past, customers generally could not get an FHA-backed loan on a condominium unit except if the whole complex had FHA approval, but only 6.5% of the approximately 150,000 condominium complexes in the country had that approval. In San Francisco, only 17 complexes have been approved.
The new approval procedure is part of a rule change that will take effect Oct. 15. The goal is to increase owning a home among low-income, minority and first-time customers, and elders looking for to downsize. Often, these customers see condos as an affordable option, but don’t have the down payment, credit score or other qualifications needed to get a conventional loan backed by Fannie Mae or Freddie Mac. They could qualify for an FHA loan, but can’t get one on a condominium because the task is not FHA-approved.
Under the new rules, they might be able to. For projects that are lacking FHA approval, the agency will insure up to 10% of individual units in projects with 10 or more units, and up to two units in projects with fewer than 10 units.
There still will be a restricted review of the task to make sure it has sufficient reserves and meets owner-occupancy and other requirements.
Generally, the task would need at least 10% of the complex’s total monthly unit assessments in reserves, and would need at least 50% of the units occupied by owners. Those are the same requirements FHA imposes on entire complexes today.
The new rule, however, also makes changes to FHA’s approval procedure for entire complexes to make it more simplified and flexible. For example, under the new rule, FHA could adjust its owner-occupancy requirement to anywhere between 30% and 75%.