On October 1, 2009 (though there’s some talk about this being delayed for 30 days), FHA is implementing a new approval process for condominiums to be eligible for FHA financing. Under the new guidelines, the spot approval process will no longer be available, and approvals expire every two years. Click here to see a copy of the HUD Notice.
For years I have bragged on this blog about FHA being an anchor for many of us in the mortgage business. And it’s true, their guidelines rarely change, however, the new market place is forcing HUD to adjust. Even HUD is seeing a rise in foreclosures over the last 12 months and they must protect themselves. The message here, hang on to your seat. There’s more to come. So here’s the gist of the change:
Applicable to condominium developments that are:
· Proposed and Under Construction
· Existing Construction
· Condo Conversions
· Proposed and Under Construction
· Existing Construction
· Condo Conversions
These projects will no longer be eligible after October 1, 2009:
· Condominium Hotels or "Condotels"
· Timeshares or Segmented Ownership Projects
· Houseboat Projects
· Multi-dwelling Unit Condominiums (More than 1 Dwelling Per Condo Unit)
· All Projects Not Deemed to be Used Primarily as Residential
Zillow® recently posted the following in regards to this new HUD rule as well:
In the past, you only needed to satisfy one of the following two criteria to finance a condo unit using FHA financing.
1.) The Condo Project has a FHA warranty - This requires the Homeowners Association of the condominium project to apply and receive a warranty on the project from the HUD.
2.) The unit must pass a questionnaire called a “Spot Check” done on an individual basis
HUD just released an announcement that they will be changing the guidelines which includes the removal of “Spot Check” approvals which means you will only be able to get a FHA loan on a condo if the project has a warranty. (Mortgage Letter 2009-19).
If you are looking to buy a condo, think twice. It’s always been a fact that condos are hard to resell. Now, with this change in financing, it will be more difficult. If you find a condo that does not have a FHA warranty and you really want to buy it, know that the new guidelines are already in affect for most lenders.
