New FHA Condo Rules Will Hamper First time Buyers

percentage-trapNew FHA Rules for Buying and Selling Condos Get Tougher

Over 30 percent of loans generated in 2009 are expected to be FHA loans. FHA loans are popular with first time buyers because they allow a smaller down payment than conventional loans as lenders have tightened their lending guidelines. Most REALTORS expect the new FHA rules to significantly hamper efforts by first time buyers to use FHA financing.

The rules will reduce the number of condo units that qualify for FHA financing in condo developments. Expect this to push down already depressed condominium sales in the East Bay. Changes in the FHA rules include:

  • Only 30% of condos in a devleopment can use FHA lending
  • The entire condo complex must be FHA approved
  • At least 50% of the units in new condo complexes must be sold before the development will be approved for FHA financing
  • FHA associations must bear the expense of an annual reserve study
  • If more than 15% of condo owners in a condo development are behind in their payments, no FHA financing will be approved in that complex

I’t going to be very difficult for condo associations to meet the requirements given the number of  condo owners that are behind on association dues.

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