FHA loans - New guidelines

Many of you might not know that the FHA provides a lot of loans to buyer's who are not in a position to put down 5% to 20% of the sales price. Thus, FHA has been an integral part in getting many homeowner's into their homes.

As of November 2, 2009, due to the crazy mortgage market, the FHA is issuing new guidelines. Unfortunately, for condo purchasers, this will make buying a condo a lot more difficult.

To begin with, FHA requires that the condo you are purchasing be FHA approved. In some instances, a developer or condo association will get the entire development approved. However, the vast majority has not. In the past, even though the development was not FHA approved, FHA would do what is considered a "spot approval." In essence, they would approve the one condo being purchased provided it met various guidelines. This allowed a homeowner to purchase in a development that was not entirely approved by FHA. However, the new change will be that there will NO LONGER be spot approvals. That being said, it means that a condo you might want might not be FHA approved and you will not be able to get financing from them. The only recourse is for the condo association or developer to go through the approval process for the entire development. If they are smart, I expect many will start to do that.

You may not think this is a big deal, but it is. For all of the wonderful complexes in the Downtown, Midtown and Buckhead areas, only a handful are FHA approved. I was amazed at how many developments were NOT approved. If you are wondering which complexes are approved at this time, check out this link:

https://entp.hud.gov/idapp/html/condlook.cfm

The other changes that are planned are:

There now will be a maximum of 30% of all units in a complex that can be FHA financed. Previously, there was no cap. What this means is that you could decide to buy a condo in a particular complex, only to find out you are not approved because over 30% of the homeowners were financed with FHA. That could be not only a problem, but a big disappointment.

At least half of the units in a development must have been sold before you can get FHA financing. This can be a problem for new developments that have yet to reach this sales quota.

At least half of the units will have to be owner occupied. For a vast majority of the complexes in the metro Atlanta area, that is not a problem as the HOA normally has a cap of 20-25% rentals allowed. However, there are a few developments in metro Atlanta that do not have any caps. If you are interested in buying using FHA financing, I suggest you find out which complexes will not meet FHA requirements.

I realize that the mortgage industry needs to be tightened up. However, some of these FHA restrictions will make it more difficult for many great homebuyers to achieve their dreams of a condo.

Pat Mistretta
Copyright 2009

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