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Revised FHA Condo Rules - HUD Relaxes Some Guidelines, Tightens Others

Posted by Benjamin Dona on Sunday, November 29th, 2009 at 1:30pm.

New FHA Condo GuidelinesJust when you thought you understood the FHA condo financing guidelines, HUD steps in and changes things all over again. And, there's both good news and bad news for buyers, sellers, investors and developers alike in the latest revisions. The new rules – which HUD says are temporary - are set to begin on December 7th and run through the end of 2010.

Here's a summary of the major changes to the guidelines:

  • HUD amended the previously controversial requirement that at least 50% of the units in a project must be sold before FHA could insure loans for new buyers on individual units. Under the new rule, FHA financing will now be available in projects where at least 30% of the existing units have been sold.
  • HUD also relaxed its guideline that no more than 30% of the units in a condo project could be financed with FHA loans. The new standard maximum will be 50%. However, they will make exceptions to this limit when the project meets an additional set of more stringent criteria including that it has been completed for at least a year and its association's operating budget has significant reserves for capital improvements and deferred maintenance.
  • HUD will continue to require that no more than 10% of the total units in a condo project be owned by a single investor and that this limit will include unsold units that the developer is currently renting.
  • HUD will keep in place the requirement that 50% of the units must be owner occupied, however, it will now "no count vacant or tenant occupied bank REO units as non owner occupied."
  • No more than 15% of the total project units can be more than 30 days past due on their association fees.
  • Condo project spot approvals are extended through January 29, 2010.

Here's a summary of the lesser known changes to the guidelines:

  • A current reserve study must be performed to assure that adequate funds are available for funding of capital expenses and maintenance. A reserve study can be no more than 12 months old.
  • FHA loans will not be allowed in projects that are within 1000 feet from a highway, freeway or heavily traveled road, 3000 feet from a railroad or one mile from a municipal/commercial airport or five miles from a military airport.
  • FHA loans will not be available to projects located within 2,000 feet of any facility handling or storing explosive or fire prone materials including gas stations, manufacturing operations or facilities that stores or use flammable or explosive chemicals.
  • Projects in designated wetlands and flood zones will not qualify for FHA loans.
  • No more than 25% of the project's total floor area can be used for commercial purposes.
  • New construction projects and conversions over 5 units now have the requirement of providing an affirmative action housing plan that includes the project having a racial, socioeconomic and ethnic composition of residents closely mirroring that of its neighboring area.

So, there you have the latest from our illustrious government lending agency. We'll let you decide if it's good news or bad news for your market area.

And the beat continues going on in the lending industry. Are we having fun yet? Only time will tell.

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About the Author

Gulf Coast Associates, RealtorsBenjamin Dona is the Broker and Owner of Gulf Coast Associates, Realtors in Bonita Springs, Florida. He holds two advanced degrees, an MBA and an MA, and has an extensive background in both business and marketing. In 1998, he founded Gulf Coast Associates, and formed a group of like-minded Realtor® associates dedicated to offering professional Southwest Florida real estate services by concentrating on information, education and the use of leading edge technologies. He also is a recognized expert on the "Net," a much-quoted and read blog author, and a contributor to both national and international news outlets. Benjamin is a member of the National Association of Realtors, the Florida Association of Realtors, and numerous local real estate boards throughout Southwest Florida.

Contact Benjamin Dona at 239-948-3955

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