Earlier this year, I wrote an article titled FHA LOANS: CAN I BUY A CONDO WITH THEM? The simple answer was: “Yes, but…”
FHA has many requirements when it comes to purchasing a condominium unit with the assistance of an FHA mortgage. In the article I list several criteria that the condominium project must meet in order to qualify for FHA financing. One of the criteria is that “Ownership by investors in the condominium must not exceed 50 percent.” This meant that 50% of the condominium units in the project must be owner occupied. Owner occupied units are defined as “principal residences, secondary residences, currently occupied units by the owners, or units that have been sold to purchasers who intend to occupy them as a primary or secondary residences.”
While the condominium project must still meet additional criteria, on October 26, 2016 the Department of Housing and Urban Development (HUD) issued a mortgagee letter making changes to the Federal Housing Administration’s (FHA) owner-occupancy requirement for condominiums (that 50% rule mentioned above). While there is still a requirement that that at least 50% of the units be owner occupied, The FHA will make an exception to this requirement if certain criteria are met. These criteria are:
- Applications must be submitted for processing and review under the HUD Review and Approval Process option (HRAP – as explained in this article)
- The project must have placement reserves of at least 20% of the budget.
- No more than 10% of the units are in arrears (more than 60-days past due on their association assessments)
- The condominium must have three years of acceptable financial documents.
How does this impact the potential buyer or seller of a condominium unit? It’s simple! If an condominium project is not currently on the list of approved condominiums, and the owner occupancy restriction was the reason preventing the approval, the project can reapply for approval. Once approved, this would allow the seller of a condominium unit to entertain offers from a new pool of potential buyers! More buyers means the potential for more offers! For buyers, more approved condominium projects means more choices for FHA buyers!
If you are considering purchasing a home or condominium with the use of an FHA loan/mortgage, it is important to work with both a real estate professional and lender that have experience with these types of purchases. Our real estate team is happy to meet with you for a free consultation.
Bobby Poth leads the Bobby Poth Real Estate Team at Revolution Real Estate, LLC in St. Petersburg, FL. Bobby has been a licensed real estate salesperson in Florida since 2004 and has experience in all areas of residential real estate.