FHA Financing For Condos

The recent Mortgagee Letter from HUD is going to impact the availability of purchase money for condos. In theory the new guidelines are supposed to make the process easier. At first glance I thought it would be (see post July 30), until I read the entire publication.

The item that alarmed me the most is the Recertification Process. All of the condos on the existing approved list will be moved a new list that requires recertification every two years. This is a big change.

Consider the unlucky buyer that purchases a condo under this system and finances it using an FHA loan. Three years later they try to sell it and the project is no longer approved unless someone has recertified the entire project. This could have a huge impact on values. It is possible a homebuyer could close on a loan today and the same loan would not be available for a new buyer tomorrow. A loan on the exact same condo may require only 3.5% down payment one day and then require 10% down the next. That difference would eliminate many buyers and that impacts value.

Here is something to consider, there are 322 projects in Kentucky on the existing approved list. This means someone will need to recertify 13+ projects per month, or roughly 3 per week - and do it for FREE??? Good luck with that.

FHA Making Financing Easier for Condos

Another change is taking place in the mortgage arena. A recent HUD letter to lenders is shifting more responsibility to lenders regarding financing condominiums, at least that is how I read it. I was alarmed today when I heard one of our wholesalers will stop accepting FHA spot approvals next Friday. Up to now lenders were able to approve a condo for FHA insurance when it was located in a project that was not approved by FHA. That process is being eliminated.

Of course that sounded bad to me. Just another option eliminated. But then I actually read the letter, and it does not sound bad at all. In fact it sounds good. Lenders are going to be able to approve the entire project instead of just one unit. There will be limitations, no more than 1/3 of the project can be financed using FHA, but it is a big move in the right direction. Thousands of additional condos in the Louisville area could now be eligible for maximum FHA financing. AAAhhhh, folks that could make your condo worth more!!!

You can read the letter for yourself: Click here