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:
- The Condominium is already on HUD's approved list;
- The developer or association apply for an approval of the entire building/project (to get on that list) - a "blanket" approval; or,
- The specific unit is approved on an ad hoc basis - a "spot" approval.
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.