New FHA Law Makes Condo Ownership More Accessible
Condominiums are a popular type of housing in Southwest Florida for many reasons. They’re appealing as second home to seasonal residents, rental properties for investors, low-maintenance homes for empty nesters and retirees, and as affordable starter homes for low-to-moderate income families.
Unfortunately, for buyers looking at FHA-backed condo loans because they don’t qualify for conventional loans, FHA’s historically tight restrictions have made condo ownership inaccessible to many.
Now, a new law under H.R.3700 – Housing Opportunity Through Modernization Act of 2016, is making it easier for buyers to get FHA mortgage insurance and opening the door for renewed growth in the condo market.
How FHA Works
The Federal Housing Administration (FHA) is a private entity, not a government one as many people believe. The FHA does not issue mortgages or house loans. What they do provide is mortgage insurance to buyers who do not qualify for conventional loans. This insurance is meant to instill confidence in banks and lenders who would not otherwise issue a loan, as they get assurance from the FHA that if the buyer defaults, the loan will still be paid.
The FHA allows buyers to finance up to 97% of the home, bringing the conventional down payment of 20% down to just 3%, making an FHA-backed loan far more affordable upfront. The catch comes in the MIP (Mortgage Insurance Premiums) that, in the case of a $200,000 home, could tack on nearly $300 to the monthly mortgage payments.
For buyers who don’t have a large down payment, but who can prove that they can make higher monthly payments, it can be their best shot at getting an affordable mortgage.
What The New Legislation Changes In FHA Condo Ownership
When it comes to buying condos, it has historically been much more difficult to get approved for FHA mortgage insurance. The new legislation changes that, though, and here’s how:
Recertification requirements for condominiums to become FHA approved are less burdensome.
One of the most painful aspects of previous FHA condo ownership was that a condominium building must be on the FHA approved list in order for buyers to qualify for FHA mortgage insurance in that building. Buildings had to get recertified every year and the process for submitting documentation was cumbersome. The new law lengthens the time between recertification and allows for updates to information versus complete resubmission. This makes it easier for buildings to stay in good standing with the FHA and be available options for buyers.
Owner Occupancy Rate lowered from 50% to 35%.
This one is a big deal for Southwest Florida. In buildings that are popular for second or vacation homes, it’s not uncommon for the occupancy to drop drastically during the summer, making them ineligible for FHA approval under the previous 50% owner occupancy rate. The new legislation says a condo building can have as little as 35% owner occupancy and still be eligible for FHA. This opens up the opportunity for more buildings to apply for FHA approval, creating more available units for future buyers.
Adopting the Federal Housing Finance Agency (FHFA) standards relating to private transfer fee covenants.
The FHFA exists to ensure Freddie Mac, Fannie Mae and Banks operate in a safe and sound manner. In 2012, the agency issued a new final rule that restricted the regulated entities from issuing mortgages on properties that were encumbered with certain types of private transfer fees. In a nutshell, the agency wanted to ensure that transfer fees paid by homeowners were used exclusively to benefit the property, and not paid as income to a third party – such as the developer.
Nina Link Can Help You Navigate The FHA Condo Market
There has never been a better time to buy a condo in Southwest Florida! With new buildings becoming available to FHA buyers, condo ownership is set to become more accessible than ever. If you’re looking at buying a condo with FHA mortgage insurance, The Link Team has the knowledge and experience to help you find what you’re looking for and navigate the FHA process.
Contact us at (239) 357-5058 to schedule your free consultation and start your condo search in sunny Southwest Florida!