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NAR: New Condo Rules Will Open More Doors for Buyers

8/15/2019

NAR: New Condo Rules Will Open More Doors for Buyers

The association says changes to FHA financing qualifications will bring more entry-level homes to the market, helping to meet buyer demand.

The National Association of REALTORS®, after reviewing the Department of Housing and Urban Development’s new condominium financing rules, says the guidance affords property owners greater flexibility in the qualification process for loans insured by the Federal Housing Administration. Lenders will be able to issue FHA loans for single condo units, and buildings with a greater number of investor-owned units or greater percentage of commercial space can qualify for FHA financing, among other changes HUD released Wednesday. NAR expects the new rules, which will go into effect Oct. 15, to revive a condo market that has been stifled since the Great Recession.

NAR says the new condo rules, which will help more would-be buyers access affordable housing, satisfy many of the changes the association has backed for more than a decade. Specifically, the new rules will:



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  • Extend FHA certifications on condo developments from two years to three years, with an additional six-month grace period to meet requirements. This will alleviate some of the cost and time burdens on condominium associations that intend to maintain FHA approval. Condo associations also may continue submitting updated recertification packages, rather than the full certification package each time. The National Association of REALTORS® expects the change to prompt more condominium properties to apply for FHA eligibility, making more affordable housing more accessible.
  • Allow for single-unit mortgage approvals—often known as spot approvals—that will enable FHA insurance of individual condo units, even if the entire property does not have FHA approval. The condo building in which the FHA buyer wants to purchase must meet certain requirements: The property must have at least five units, a limited concentration of FHA-insured units, at least 50% owner-occupancy, and a maximum of 35% commercial space.
  • Secure additional flexibility in the ratio of investors to owner-occupants allowed for FHA financing in a condo building. While the current owner-occupancy requirement is 50%, HUD may approve an owner-occupancy level as low as 35% for older properties with less than 10% of units in arrears. Individual investors can purchase no more than 10% of units in a property with more than 20 units and no more than one unit in properties with less than 20 units.


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FHA approvals for condos prior to these changes have been heavily restricted. For example, the National Association of REALTORS® pointed to data earlier this year showing that in Florida’s Miami-Dade County, there were 5,683 condo projects—but only seven had FHA approval. NAR sent out an all-member email about the new condo rules Wednesday morning.

“It goes without saying that condominiums are often the most affordable option for first-time home buyers, small families, and those in urban areas,” NAR President John Smaby said in a statement. “This ruling, which culminates years of collaboration between HUD and NAR, will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people.”


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The association’s most recent existing-home sales report, released in July, showed that sales of condos and co-ops dropped 6.5% year over year. Further, with more than 8.7 million condo units nationwide, only 17,792 FHA condo loans were originated in the past year. Down payments for single-family homes also have grown significantly more expensive in recent years in the absence of widely accessible FHA condo financing, NAR argues.

FHA restricted its condo approval process in 2009, which limited the number of properties that could receive FHA loans. In 2016, it moved to lift several of those restrictions, but the proposed rules were never finalized.




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8/15/2019

U.S. Will Back More Condominium Loans Aimed at First-Time Buyers

Move expands FHA-backed low-down-payment loans in loosening of crisis-era rules

By 
Laura Kusisto

The Trump administration is vastly expanding the scope of condominium purchases eligible for lower-down-payment loans.

The move, announced Wednesday by the Federal Housing Administration, could help revive the entry-level condo market for first-time buyers because FHA-backed loans require only a 3.5% down payment and lower credit score than conventional loans.

It also loosens financial-crisis-era rules and could expose the government to a higher likelihood of loan default if the housing market continues to slow and prices fall.



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The FHA insured a million home loans last year made by banks and other private lenders, the vast majority of which were for single-family homes. With the new rules, the agency estimates it could insure as many as 60,000 additional condo loans each year, on top of the 16,000 condo loans it backed in 2018.

Condos are a more affordable alternative for first-time buyers in cities like Seattle, Austin and Denver, where single-family homes are increasingly out of reach for many. The median price of an existing condo or co-op unit was just over $260,000 in June, compared with nearly $290,000 for the median existing single-family home, the National Association of Realtors said.

“This is set to really expand homeownership,” said Ben Carson, secretary of the Department of Housing and Urban Development, which oversees the FHA.

Skeptics say now is a risky time for the government to back more condo loans. David Stevens, retired chief executive of the Mortgage Bankers Association, who ran the FHA through the fallout from the 2008 housing crisis, said he worries about repeating the mistakes of the past.




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“FHA is already a higher-risk program,” Mr. Stevens said. “Layer that on top of a higher-risk product called the condominium, and you definitely have to prepare yourself for the fact that in the next correction you’re going to take more losses at FHA than anywhere else.”

Mr. Stevens said condos are a dicier proposition because units in a building can be turned into rentals, which tend to be less well-maintained. A single foreclosure in a condo building can affect other units as windows aren’t washed, balconies aren’t painted and maintenance dues aren’t paid.

One reason the FHA became enmeshed in risky condo loans during the previous housing boom was a practice known as spot approvals. Entire condo buildings are supposed to be certified before borrowers can get FHA loans there, but the agency began routinely making exceptions and granting individual loans, Mr. Stevens recalls.




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Beginning in 2008, the FHA tightened its lending standards for condos, including eliminating spot approvals. Condo lending became a niche part of its business: Only 6.5% of the 150,000 condo projects in the U.S. are FHA-certified.

Now, the FHA will once again approve loans for individual units in buildings that aren’t certified. FHA Commissioner Brian Montgomery said the agency has tightened requirements to avoid the abuses of the last housing boom. Individual loans will be approved in most buildings only if no more than 10% of the loans are to FHA borrowers.

The changes have been in the works since 2016 but hit a pause during the switch in presidential administrations before agency officials revisited the policy details.

The new rules won’t help the struggling luxury-condo markets in Miami or New York. FHA loans are targeted at moderate-income borrowers and are capped at around $350,000 in Miami and around $730,000 in the New York area.




A low-down-payment loan did help Ryan Bielby, a 27-year-old voice designer in Seattle, afford his first home. Mr. Bielby has been living for about five years in Capitol Hill, where single-family homes in the area were completely out of his price range of $300,000 to $400,000.

He found a top-floor condo unit with views of the city and hardwood floors and was able to afford it putting about 5% down. Mr. Bielby said he had spent several years saving for that down payment and didn’t want to wait much longer. “I wanted to start putting more money down to start building up some equity,” he said.

Lawrence Yun, chief economist at the National Association of Realtors, said the new rules could help stimulate demand from more moderate-income buyers and boost the housing market late in the cycle. Still, he said that unless builders shift from building luxury apartments to condos, supply shortages at the lower end will persist.

“This is bringing additional potential demand, and right now we are in a housing shortage, so this is a move in the right direction but clearly we need more supply,” Mr. Yun said.

“It’s an insurable risk. Just do it with your eyes open,” said Ed Golding, a fellow at the Urban Institute and former FHA commissioner during the Obama administration. “It’s too important a part of the housing stock to just completely ignore.”


Source: https://www.wsj.com/articles/u-s-will-back-more-condominium-loans-aimed-at-first-time-buyers-11565775000









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