FHA Condo Woes

Condominiums are getting more and more difficult to finance, and FHA is not helping!  According to Mortgagee Letter 2009-19, the following changes are being put in place for Condominium Projects:

• FHA will NOW allow lenders to determine project eligibility, review project documentation, and certify to compliance of Section 203(b) of the NHA and 24 CFR 203 of HUD’s regulations.  The Lender must keep all legal documents on file.
• Project Approval is not required for FHA‑to‑FHA streamline refinance transactions; or FHA/HUD Real Estate Owned (REO) Division sales.

The following requirements apply to all Condominium Project approvals:

• Projects consist of two units or more.
• Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.
• Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.
• No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes.  The commercial portion of the project must be of a nature that is homogenous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.
• No more than 10 percent of the units may be owned by one investor.  This will apply to developers/builders that subsequently rent vacant and unsold units.  For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants.
• No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.
• At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan.
• At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units.  For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies).
• If the owner-occupancy ratio includes presales, FHA requires an executed sales agreement and corresponding evidence that a lender is willing to make the loan and the buyer intends to occupy the unit.  A separate owner-occupancy certification is also required in the FHA case binder for loans where the Individual Condominium Unit Appraisal Report, Fannie Mae Form 1073, does not contain the required data or the condominium project is proposed or under construction.
• On multi-phased projects the owner-occupancy percentage is calculated on the first declared phase and cumulatively on subsequent phases if the ownership of the condominium project remains the same;
• If multi-phasing includes separate ownership per phase, each phase is calculated individually; or
• Single-phase condominium project approval requests must meet the owner-occupancy percentage requirement.

WHAT DOES ALL OF THIS MEAN?  Well, from our perspective it means that the process just got more complicated and more costly.  If you are considering the purchase of a Condominium in NC and want to use FHA financing, CALL US  – Steve and Eleanor Thorne, First Financial Services, 919-649-5058.

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