Condos are a popular option for first-time home buyers. On average, they typically cost less than single family homes, enabling first-time buyers to achieve homeownership in more expensive markets. The ongoing cost of ownership is also less, as the communities handle would-be expensive and time-consuming tasks like landscaping, outdoor maintenance, and snow removal.
According to the FHA, 84% of condo buyers it backs have never owned a home before. As a result, the Administration will implement new rules to create more opportunities for condo ownership for first-time buyers. According to FHA Commissioner, Brian Montgomery, “this new rule allows FHA to meet its core mission to support eligible borrowers who are ready for homeownership and are most likely to enter the market with the purchase of a condominium.”
Our friends at CAI shared details on the policies, which go into effect on October 15, 2019. Below are the main benefits of these changes:
- Allows for single unit approval process to make it easier for individual condominium units to be eligible for FHA-insured financing (previously, in order to obtain financing using an FHA loan, a purchaser had to choose a unit in a project where the entire project was already approved)
- Extends the recertification requirement for approved condominium projects from two to three years (additionally, those projects seeking recertification need only update new information rather than resubmit all project information)
- Allows for more mixed-use projects to be eligible for FHA insurance
CAI goes on to highlight what these changes mean for condo communities. The organization discusses how as of tomorrow, “the FHA will start to insure mortgages for selected condominium units in projects that are not currently approved.” That is, as long as the following conditions are met:
- The individual condominium unit must be located in a completed project that is not approved
- For condominium projects with 10 or more units, no more than 10% of individual condominium units can be FHA-insured; and projects with less than 10 units may have no more than two FHA-insured units
According to Fox Business, only 6.5% of the 150,000 condo projects in the U.S. are currently approved for FHA’s mortgage insurance programs. With the new policy, it’s estimated that between 20,000 and 60,000 units will be eligible for FHA financing each year.
Secretary of Housing and Urban Development, Dr. Ben Carson, states, “condominiums have increasingly become a source of affordable, sustainable homeownership for many families and it’s critical that FHA be there to help them.” This will likely be welcomed by first-time homebuyers, as it comes at a time when a growing number of U.S. cities, like our hometown of Denver, are becoming increasingly unaffordable.
For more details on these regulations, check out CAI’s website.