Changes Sought in FHA Condo Rules

Wednesday, June 1, 2011
By Lew Sichelman
Two politically potent housing organizations have called on the Federal Housing Administration to relax its rule regarding condominiums.

The National Association of Realtors and the National Association of Home Builders want the FHA to eliminate the restriction on condo rentals and increase or at least temporarily suspend its limitation on the number of units that can be financed by government-insured loans. They also want relief from a rule that requires a certain number of units must be sold before buyers can qualify for an FHA mortgage.

Under current FHA rules, at least 30% of a condominium community’s total units must be sold before the agency will endorse a mortgage on any unit. But the requirement will become even more onerous when it returns to its previous 50% level on June 30.

In addition, FHA financing is limited to no more than 50% of the condominium’s units, and no less than half the community can be owner-occupied.

Relaxing the rules, the NAR and NAHB said in a letter to acting FHA Commissioner Robert Ryan, would allow more first-time buyers to purchase condos, which tend to be aimed at the first-time buyer market. Often, FHA financing is the only financing for which rookie buyers can qualify, they pointed out.

The two groups, which were joined in the letter by the Community Associations Institute, and the Institute for Real Estate Management, also want the prohibition against investors owning more than 10% of the development’s units raised “to a more appropriate level,” and to increase that part of a mixed-use property’s floor area that can be used for commercial purposes from 25% to 45%.

On the latter proposal, they argued that combining residential and commercial uses helps reduce sprawl and offers residents employment opportunities and easier access to products and services.

Finally, to more accurately reflect current market conditions, the trade groups want the FHA to change its requirement that no more than15% of the owners in any one condo be more than 30 days late on their homeowners association dues to “no greater than 90 days.”

Cynthia Fauth

Cindy Fauth (CIPS, ePRO) is Director of Global Marketing & Communications for the National Association of REALTORS® Commercial & Global Services division. She joined NAR in September 2009, and lends her expertise to the promotion and growth of the Certified International Property Specialist (CIPS) designation, At Home with Diversity certification, and International REALTOR® membership, along with the many other programs NAR Commercial & Global Services offers.

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  1. I’m all for changes to FHA (and Fannie Mae) condo guidelines. The current restrictions are hurting values in my area now. We’ve got a ton of older developments near the colleges that just can’t be sold right now because of investor percentages and rental rates. Frustrating.

  2. There might be some changes in condo rules that needs to be upheld. These changes could be for the better. But one thing is for sure, many are supporting the change and in fact some of my clients from Chula Vista homes for sale are supporting these changes.

  3. I think condos are not as popular as they once were. They’re just too much of a hassle and too expensive. People have nothing but problems with them.

    That’s why we set up a program for condo owners to submit there condos to be rented out in exchange for reward points that can be used for them to take a vacation wherever they want.

  4. I hope these changes will be implemented soon. It is true that condos are becoming unpopular due to overboard prices. But if proper marketing is applied to the right people it will sell. I have been thankful that my business Fayetteville homes for sale is successful.