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The Federal Housing Administration began enforcing new rules in attempt to help more condominium buyers qualify for mortgages. Officials state that such rules are necessary to ensure consumers are purchasing units in viable buildings, and are also meant to keep defaults on condo projects to a minimum.
Highlights of the new policy on loans in condo buildings include the following:
· 50% owner-occupancy minimum, excluding vacant and tenant-occupied units
· Condo pre-sale threshold reduced from 50% to 30%
· Cap on FHA loans in a building raised to 50% from 30%
*Note: the cap can be raised to 100% if certain conditions are met
· Eligible buildings’ association must have at least 10% of budget in a reserve fund
· No more than 10% of units can be owned by one investor
· No more than 15% of units can be at least a month in arrears on association fees.
· Loans now OK when associations have the right to reject a buyer, provided there is no
Some argue that these changes will make it harder for builders to deliver new condo buildings. The debate relates to certain changes such as the new eligibility requirement for building associations. It states that loans will be approved in buildings whose condo associations have deposited 10% of their annual budget in a reserve account for repairs and maintenance. Critics say the 10% threshold is too high for buildings with few units. Furthermore, the FHA has been scrutinized for falling into industry pressures on the process, therefore causing condo loans to be more prone to foreclosure.
FHA officials, on the other hand, believe the policy is well-balanced, mitigates risk, and helps to protect consumers. Since lenders are now forced to be more careful about which projects they fund, such rules contribute to more financially sound condo investments.
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Is the FHA push a good move for the condo market?