Effective December 2009, the Federal Housing Administration (FHA) implemented a new stricter approval process for condominiums to be eligible for FHA financing.
Why Should a Condo Buyer Care?
More borrowers qualify with FHA financing than with conventional loans due to the low down payment (3.5% down) program and the looser credit standards. Even the mortgage interest rates are typically better.
Number FHA Approved Condos Diminished with New Guidelines
Unfortunately for the condo buyer the number of condominium complexes that will be FHA approved under the new guidelines will significantly diminish. Some “highlights” of the new regulations:
- At least a 50% level of owner occupancy or sell out (if a new build)
- No more than a 15% of the members can be delinquent on their dues
- No more than 10% of the units may be owned by one investor. This includes the developer.
- Entire complex (not just the unit like has always been) must be approved by the lender
- Reserve Study – a current reserve study within the last 12 months must be reviewed to assure that adequate funds are available for the funding of capital expenditures and maintenance. The regulations don’t define what is “adequate,” however it would be reasonable to expect that at least 10% of annual operating budget would be held in reserves.
A Word of Caution to Condo Buyers
A word of caution to condominium buyers – pick your development carefully. Get your lender involved early – even before you write an offer. Make sure your lender is well versed on the new regulations and what it takes to close a transaction. Get representation from a condominium specialist – someone with the expertise and experience to help you avoid the potential pitfalls being created by the new FHA and HUD condominium approval rules and stricter underwriting requirements. Although you are a buyer today, tomorrow you may be a very frustrated seller.
If Done Right, these New Rules Should Have Little Impact on Your Transaction
By working with condominium specialists who have the knowledge and expertise to navigate these new rules you can minimize the impact on your transaction. With a little bit of guidance before you start looking for San Mateo condos and during the process, you’ll wonder why we made such a big deal about these changes in the first place!
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Raymond Stoklosa, Chela Stoklosa and Rebecca Williamson are Realtors with The RayChel Realty Group specializing in Santa Clara and San Mateo Real Estate.
Raymond Stoklosa, Broker/Co-Owner
Chela Stoklosa, Realtor/Co-Owner
