New Condo Rules Could Create More Affordable Housing
It’s been a long-time coming, but new loan policies for condominiums are finally coming to fruition which will create more housing affordability for Americans.
The Department of Housing and Urban Development (HUD) announced these new Federal Housing Administration (FHA) policies in August and indicated they will go into effect on Oct. 15, 2019.
These new HUD policies are intended to generate new condominium development or redevelopment (converting apartments into condominiums), which will in turn create more options for first-time homebuyers, or people looking to rent the homebuying market.
“We are thrilled that HUD Secretary Ben Carson has taken this much-needed step to put the American dream within reach for thousands of additional families,” NAR President John Smaby said in a press release. “It goes without saying that condominiums are often the most affordable option for first-time homebuyers, small families and those in urban areas.
“This ruling will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people.”
According to Forbes, a significant majority (84 percent) of FHA-insured condo buyers have never owned a home. Despite more than 150,000 condo projects existing nationwide, only 6.5 percent are approved to participate in FHA mortgage insurance programs.
Forbes estimated upwards of 60,000 condominiums could now become eligible for FHA-insured financing as a result of these new policies.
A National Association of REALTORS® report on existing home sales showed a 3.3 percent decline in condominium and co-op sales month-over-month from May to June and a more precipitous drop of 6.5 percent from June, 2018.
NAR identified that there are 8.7 million condominiums in the United States and yet, there were only 17,792 FHA condo loans that originated in the past 12 months.
“Condos are typically more affordable than a detached single-family home, but only a small fraction of condos are FHA-certified,” said NAR Chief Economist Lawrence Yun.
He noted that even though prices on condos have risen slightly, they remain mostly affordable and as such are integral to overcoming some of the affordability and availability issues that are plaguing many housing markets in the country.
Specifically, the new rules allow for:
- Single-unit mortgage approvals – this will make it easier for individual condos to be eligible for FHA-insured financing.
- More FHA loans per project: This was accomplished by easing restrictions on commercial space, creating more eligibility for those loans by mixed-use projects.
- More flexibility with the ratio between owners and occupants: Prior to these new rules, 50 percent of the units in a condominium complex needed to be owner-occupied. Now, that requirement is being reduced to 35 percent.
- Certifications extended from two years to three years: in addition, the process for recertification of a project was simplified to require only new information to be added rather than re-submitting an entire project when recertified.
- Frequency of insured mortgages increased: The FHA will now insure 75 percent of mortgages in an individual condominium project.