FHA has changed its requirements for condos to be certified, making it easier for sellers to sell and buyers to get financing.
This has been a big and ongoing issue, and today’s news is a major and positive change — and something condo owners (and the people who represent them) will appreciate.
Here’s the background: If someone wants FHA financing for a condo, not only do they have to be approved, but the condo itself has to have been “certified”. And back in 2011, FHA de-certified all of them — it required every one to reapply.
Two problems there. First, not every condo board went through the trouble, either because of laziness, confusion, or fear of lawsuits/fines if they made a mistake on the paperwork, because the law said that if there are inaccuracies, the condo board members could face up to 30 years in prison.
Second, the condo requirements were high enough that a lot of condos didn’t make the cut. (FHA was tired of having so many delinquent and foreclosed condos on its books.) Ergo, no FHA loans for potential buyers — something sellers may not have found out about if the condo board neglected to mention it.
For example, at least half the units had to be owner-occupied, no more than 15 percent of owners could be delinquent on their condo fees — defined as 30 or more days behind. Finally, three-quarters of the space had to be residential.
Needless to say, there was some consternation; NAR urged the FHA to loosen those rules so qualified buyers could buy and sellers could sell.
Today, FHA has done just that — at least in part.
The new rules for certification allow investors to own up to half of the units (not just 10 percent), and half the space can be commercial (instead of 25 percent). And it raised the bar on delinquency to 60 or more days behind on condo fees instead of 30 or more.
Some significant hurdles to certification remain. Half a project’s units must still be owner-occupied, for example, although the rule is waived for REOs; NAR wants the requirement eliminated. Only half a condos units can be financed through FHA. And the condos’ boards are still liable for incorrect information, although less so if they’re following attorneys’ advice.
It’s a good first step, and should make things easier for at least some condo owners to sell, and for some potential buyers to get financing. But it’s still just a first step.