Thousands of additional condominium units in the market will soon become eligible for FHA financing after the Federal Housing Administration (FHA) issued last August an important update which included the revival of its “spot approval” program. Compared with a detached single-family home, a condo is a more affordable option for a broad range of credit-worthy homebuyers who prefer a relaxed lifestyle that’s surrounded by amenities. The new policy will result in an estimated 20,000 to 60,000 FHA-insured condominium units every year.
Beginning October 15, 2019, the FHA will insure up to 10 percent of single-family units of condominium projects with 10 or more units. For condominiums with less than 10 units, the FHA will insure two single-family units. FHA will insure the units in completed condominium projects that were not previously approved. Moreover, most of the approved condominium projects must have at least a 50 percent occupancy rate by owners to get approval. U.S. Housing and Urban Development (HUD) Secretary Ben Carson noted that “condominiums have increasingly become a source of affordable, sustainable homeownership for many families and it’s critical that FHA be there to help them.”
Also, part of the amended guidelines, the FHA will extend the condo recertification deadline up to three years which includes condo projects with commercial/non-residential spaces.
FHA’s single-family unit approval update is a much-awaited move
FHA’s spot loan program has benefited people who qualified for an FHA loan to buy a single-family unit condo. The program has struggled since the housing market crashed. There were talks in 2016 to revise the program to broaden its scope during the time when condominiums were becoming more popular. The National Association of Realtors or NAR noted that of the more than 8.7 million condo units nationwide available in 2018 only 17,792 FHA condo loans were originated. Condo sales have declined in recent years because there were only a few condo projects that have been certified by FHA, and sellers find it difficult to look for prospective condo buyers. As of the issuance of the new rule, of the more than 150,000 condo projects nationwide, only 6.5 percent were approved by the FHA to participate in its mortgage insurance programs.
NAR President John Smaby, in a report, noted that “condominiums are often the most affordable option for first-time homebuyers, small families, and those in urban areas.” NAR applauded the agency’s efforts in revising its guidelines.
Ask yourself these 5 basic questions when choosing a condo
A condominium unit is often a choice for first-time homebuyers and retirees who want to downgrade from a conventional home. Condominiums have several lifestyle amenities that often appeal to homebuyers. Although condo units are significantly affordable than a detached single-family home, prospective homebuyers also have to deal with some trade-offs, and they may want to ask these basic questions when choosing a condo:
1. How does the condo association manage its finances?
As a prospective condo buyer, it’s critical that you know if the condo association keeps a portion of monthly payments to cover major repairs and maintenance costs. Also, you may need to find out the coverage of a condo’s insurance policy. Some condo insurance policies will also cover your personal belongings.
2. Can I conform to the condo’s terms and conditions?
Condo unit owners usually must conform with the condo’s CC&R or the Covenants, Conditions and Restrictions. There are condos that restrict interior remodeling and gardening. There are also condos that won’t allow you to bring pets. After reading the CC&R, you may want to personally check the community if the rules are being enforced and if the tenants obey it.
3. How good is privacy?
Because of the nature of cluster living, privacy is the main concern in condominiums, particularly soundproofing. You’ll surely find it annoying if you can hear noises from other tenants as it will give you a hint that they’ll likely hear you when you’re in a heated argument within the household.
4. Is the condo properly managed?
Condo buyers usually prefer a properly managed community, which includes prompt responses when they experience problems inside their units. To check if the condo is properly managed, you may want to ask existing or previous tenants if they were satisfied with the condo association and see if it’s worth dealing with.
5. Am I making a good investment?
If you have a plan of selling your unit, you may want to figure out if the unit’s appraisal will likely rise after several years. You may want to avoid condominiums with lots of unsold units and those that are mostly occupied by renters. Make sure to shop around and compare prices between several properties to get the most competitive condo association fees.
Buying a condo unit is a good choice if you prefer an affordable and comfortable lifestyle, unlike conventional homes. If you’re eligible to get an FHA loan, you may want to extend your condo shopping until the new FHA regulations take effect to give you better options.