Bye bye FHA Financing on Condos (Video)

New Project Eligibility Requirements

• Projects must consist of two units or more. (This used to be 4)
• Projects must be covered by hazard and liability insurance, and flood
insurance if applicable.
• Right of first refusal is permitted unless it violates discriminatory conduct
under the Fair Housing Act. This is new and a welcome change. FHA used to
require complete removal of the language from the HOA’s document which excluded a lot
of projects who’s Home Owners Association fervently wanted to retain that right.
• No more than 25% of property’s total floor area can be used for
commercial purposes. Commercial portion must be free of adverse
conditions to occupants.
• No more than 10% of units may be owned by one investor. This applies to
developers/builders that rent vacant and unsold units. For two and three
unit projects, no single entity may own more than one unit; all units and
common areas must be 100% complete; and only one unit can be
conveyed to non-owner occupants.
• No more than 15 % of total units can be in arrears (more than 30 days
past due) of their condominium association fee payment.
• At least 50% of the total units must be sold prior to endorsement of any
mortgage on a unit. Valid presales include an executed sales agreement
and evidence lender is willing to make the loan.This was reduced from the
previous presold requirement of 51%.
• At least 50% of the units must be owner-occupied or sold to owners who
intend to occupy the units. For proposed, under construction or projects
still in their initial marketing phase, FHA will allow a minimum owner
occupancy amount equal to 50% of the number of presold units (the
minimum presales requirement of 50% still applies).This also is reduced from
the previous owner-occupancy requirement of 51%.
• Legal Phasing is permitted for condominium processing. It is
recommended that developers submit all known phases for initial project
approval. For purposes of calculating the owner-occupancy percentage:
• On multi-phased projects the owner-occupancy percentage is
calculated on the first declared phase and cumulatively on
subsequent phases if the ownership of the project remains the
same;
• If multi-phasing includes separate ownership per phase, each
phase is calculated individually; or
• Single-phase condominium project approval requests must meet
the owner-occupancy percentage requirement.
• FHA Concentration
• Projects of three or less units will have no more than one FHA
insured unit.
• Projects of four or more units will have no more than 30% of total
units insured by FHA.

FHA has had concentration requirements, but has never provided a method to track them. That is going
to change since it’s a huge part of what got them in so much trouble. Not only are they working on
tracking the number of FHA insured units in each project, they will make this information readily available
to the public so that it can be easily accessed by Realtors, lenders, etc.Why will we care? Well let’s say,
as a lender, a realtor comes to you asking you to submit an existing project for approval or recertification.