New Guidelines for FHA Financing in Condominiums

By Tyler S. LaMarr

Attorney with Miller Harrison LLC

If you’ve ever worked with a Condo Association to obtain project approval for FHA financing, you are aware that the process can be cumbersome.  It involves gathering and presenting governing documents, financial statements, and insurance policies, among other required documentation and certifications. 

Sometimes, applications are denied on inconsistent bases and additional documents are requested by the Department of Housing and Urban Development (“HUD”) before approval is granted.  An association must prove it has adequate reserves and at times demonstrate it has kept up on appropriate maintenance for the age of the project.

On August 14, 2019 HUD announced publication of the long-awaited final regulation, and policy implementation guidance, which establish a new condominium approval process.[1] The new guidelines are intended to streamline the process and increase the number of FHA loans.

HUD recognizes that condominium projects have become a source of affordable homeownership and HUD secretary Ben Carson desires to encourage and facilitate homeownership by facilitating more FHA loans.

Here are the key points to be aware of:

·      The new policy went into effect on October 15, 2019;

·      The new policy introduces a new single-unit approval process to make it easier for individual condominium units to be eligible;

o   Individual units may be eligible so long as no more than 10% of individual units are FHA insured (no more than 2 in a project with 10 or fewer units)

·      The new policy will allow for approval of more mixed-use projects (buildings with both commercial and residential units). The new policy offers flexibility to adapt to market conditions. Deviations from the long-standing guidelines will be published in reaction to varying market conditions. This allows HUD discretion to approve projects even if:

o   Owner-occupancy status is less than 50%

o   FHA concentration of loans in the project exceeds 50%

o   Or reserve contributions are less than 10% of the annual budget

·      The new policy provides that any unit that is occupied by the owner as his or her place of abode for any portion of the calendar year other than as a principal residence and that is not rented for a majority of the calendar year shall count towards the total number of owner occupied units.

Although the new policy will allow spot approval of an individual condo unit in an otherwise unapproved project, most condominium associations will still desire to pursue project wide approval so that the concentration of loans exceed 10%. 

The final rule also publishes helpful HUD responses to public comments that provide insight on HUD’s approval process and general eligibility for FHA approval.