Skip to main content

CONDO LOAN GUIDELINES ARE CHANGING - AGAIN

Stop me if you have heard this one before.

FHA financing has become more prevalent in the market over the last two years as Fannie Mae and Freddie Mac tightened the reigns on low down payment condo loans. More and more condo deals (at least the ones I am seeing) are being financed by FHA backed loans - they are still guaranteeing loans for up to 97% of a purchase price.

That may change soon in the wake of FHA's Mortgage Letter 09-19, issued earlier this week. Lending guidelines for condominiums are changing. again.

Basically, FHA requires that both the borrower and the property must satisfy lending guidelines. Condo approvals come in three different flavors:
  1. The Condominium is already on HUD's approved list;
  2. The developer or association apply for an approval of the entire building/project (to get on that list) - a "blanket" approval; or,
  3. The specific unit is approved on an ad hoc basis - a "spot" approval.
Spot approvals require certain specified requirements be met in order to obtain HUD’s blessing (Typically a two page questionnaire). A pain, but faster & easier than submitting the ream of documentations necessary for a blanket approval for an entire condo project.

HUD has announced that, effective October 1st, it is eliminating the spot approval process. Early reports suggest that some lenders stop processing applications for spot approvals even sooner (yikes!).

I strongly encourage anyone who is shopping for a condominium, and intends to use an FHA loan so as to make a minimal down payment, to get going NOW, before this rule changes. Blanket approvals might get somewhat streamlined, but are going to take time. Too much time to make them viable options for any single buyer or resale situation.

There are, at least, two silver linings in all of this

  • elimination FHA's prohibition of the right-of-first-refusals, and
  • and end to the "1-year waiting period" for condo conversion project approvals.

Comments

Kiwi said…
So does this mean condo associations who have a right of first refusal in their bylaws do not need to get them removed?
my favorite lawyer answer;

THAT DEPENDS!

1/ if the governor signs, and if FHA allows spot approvals on condos with the first right of refusal (FRR) then it would seem unnecessary to go through the hoops to eliminate them.

2/ if the unit owners do not have any urgent need or desire to sell their units in the near term, i'd be inclined to wait until after october 1 to see how mortgage lenders adapt to the new fha guidelines.

after the 1st, lenders with "direct endorsement" (DE) will be able to approve enitire condo buildings, for FHA. if they can do so efficiently (quickly) and without jacking up the costs of mortgage loans on those condos, there won't be any particular need to eliminate the FRR's. as a practical matter, it just wont matter any more.

3/ BUT, smaller condo associations (2-6 units?) might still want to give serious consideration to making the change. my suspicion is that DE approvals will make more business sense to lenders who believe that they will be able to make multiple loans into those buildings. the fewer the number or units, the fewer opportunities they will have to make loans, the less likely they will be to devote resources to approval of those condos.

smaller associations (in my mind, anyway) will probably still want to consider eliminating their frr's...particularly if an owner or two really want or need to sell soon.

Popular posts from this blog

The Equifax data breach and you — 6 steps to take now

Identity thieves hit a major credit reporting agency—hard. Millions of consumers’ confidential identity information has been compromised.

Equifax, one of the big three credit reporting agencies announced that a massive security breach took place earlier this year. Offenders accessed data sets of 143 million US consumers.

With federal tax reform looming, should I prepay 2017 Cook County property taxes?

By Michael H. Wasserman

Paying property tax bills before the end of the 2017 may help some owners save on their federal income tax liabilities.

The Tax Cuts and Jobs Act has been called the most sweeping tax reform bill in decades. Like it or
not, tax reform is coming. Others might wring their hands with glee or with worry. We are already working on ways to minimize the pain this reform might cause. 
One aspect of the pending tax reform plan presents a clear challenge for most Chicagoland home owners, the elimination of deductions for State and Local Taxes (SALT). The house and senate plans both limit deductibility to $10,000. Once the tax reform is signed into law, we will pay federal income taxes on the money we use to pay our local taxes exceeding that $10,000 threshold. Some homeowners who have the foresight (and lets face it, the savings) to act swiftly may want to pre-pay their first installment 2017 property tax bills this year before the tax laws kick in, so that those payments …

What to do when drones fly near your home

Imagine a quiet evening on the deck of your new home when—out of nowhere—a noisy drone begins hovering around your property, almost certainly snapping photos or video. It’s like Space Invaders meets Gladys Kravitz. So what do you do?