FHA loosens condo rules

Responding to lender, condominium association and consumer outcry that the existing FHA condominium lending guidelines are too strict, the Federal Home Administration (FHA) has announced a round of changes which will hopefully make it easier for borrowers to qualify for FHA condo loans. The full FHA announcement can be found here.While some of the changes are a step in the right direction, I think overall they are a mixed bag, as FHA left some of the most onerous provisions intact. I’m skeptical that these new changes will have a major impact on condominium sales, but of course, any loosening of the strict requirements is a positive move.

Condo fee delinquency rule increased to 60 days overdue
FHA is softening its stance on delinquent monthly condo fees and home owner association (HOA) dues. FHA is now allowing up to 15 percent of a project’s units to be 60-days delinquent on condo fees, up from just 30 days delinquent under the prior rule.

.
Expanded investor purchasing allowed

Under the new rules, investors can come in and buy more units in a project than they could previously. They can now buy up to 50 percent of the project units, up from just 10 percent before, but with an important caveat: the developer must convey at least 50 percent of the units to individual owners or be under contract as owner-occupied.

Owner occupancy limits and total FHA financing percentage unchangedThe biggest disappointment of the new rules is that the main impediment to FHA condo financing remains unchanged, and that’s the 50 percent rule. Before any new buyer can obtain FHA financing, 50 percent of a project’s units be sold to third party buyers. This is what I’ve called the Catch-22. FHA provides the most first time home financing, so how can a developer expect to sell out his project if he cannot offer initial FHA financing? I agree with the National Association of Realtors and the Community Association Institute on this one. Get rid of the 50 percent rule or decrease it to 25 percent or less.Another restriction that hasn’t changed is the number of units that can have an FHA-backed loan. Only half the units can have FHA financing, so a borrower can’t get FHA approval if his unit would put the number of FHA financed units over 50 percent. That limitation remains unchanged, and that’s a killer for a lot of projects.

Spot approvals remain dead
Mortgage lenders used to love FHA “spot approvals” which could by-pass the involved standard FHA approval process in order to get individual unit financing. Problem was is that they love spot approvals way too much, and they got abused. FHA did not resurrect spot approvals from the dead on this go-around. Maybe they will be back when the economy gets better.

More commercial space OK
Projects can also have more space devoted to non-residential commercial uses than before. You see this a now in Boston with Starbucks and a bank office on the ground floor of a new condominium building. Up to this point, only 25 percent of project space could be used for commercial purpose. Now 50 percent of the project can be commercial, although certain authority for approval is reserved for the local FHA office. This will benefit the newer mixed use projects in urban markets.


Fidelity insurance coverage required

Important for all condominium professional management companies. If the condominium engages the services of a management company, the company must obtained its own fidelity coverage meeting the FHA association coverage requirements or the association’s policy must name the management company as an insured, or the association’s policy must include an endorsement stating that management company employees subject to the direction and control of the association are covered by the policy. This is a substantial change to the previous requirements that required management companies to obtain separate fidelity insurance for each condominium.

Advertisements

Fewer First-time Home Buyers Making the Plunge

Image

I was reading an article earlier stating that only 34% of all buyers in July were first-time home buyers. The author of the article seemed surprised by this statistic but I don’t seem to be phased too much. According to the National Association of Realtors, first-time buyers usually account for about 40% of the homes purchased in any given month. Our number seems to be low this month, but we’re actually higher than we were a year ago. With extremely low interest rates and low prices, you would think that many home buyers, even over 50% would be first-timers. This is not the case and I’ll tell you why. Many first-time home buyers have already purchased a home. Remember that $8,000 tax credit for first-time home buyers? Many people bought their first home during this time because that was a deal too good to pass up. Another reason many have yet to purchase is the simple fact of purchasing power. A huge amount of younger people are significantly underemployed. What types of homes can you purchase with a $40,000 per year salary? Not many, and the ones you can afford need heavy repairs. Regardless of low prices and low rates, if you can’t afford a home or worse yet, you can’t qualify for a loan, you will not be purchasing a home as a first-time home buyer. One of the most important factors, I believe it is the single most important, is the ability to come up with a quality down payment. A large down payment can solve many problems and also ease the tension of being a homeowner, but it also comes with its own set of problems. We don’t want to be cash poor but this can occur quickly, especially with the loss of a job. I always recommend putting as much as you can down, but you still need to have a significant reserve fund just in case. Many people will dispute this, especially with low down payment options from FHA insured lenders, but it’s hard to argue with a small mortgage payment.

Is It Time for Young Families to Buy a Home?

We have reported that almost six million adults between the ages of 25 to 34 are currently living with their parents. That number reflects an almost 50% increase since 2003. These young adults are now being advised to jump into homeownership.

Who are the people selling them on the American Dream? Their parents! It seems that parents of some adult children are strongly suggesting that their children take advantage of the low cost of homeownership available today. Some moms and dads are helping financially and are even co-signing for the mortgage. Middle age parents who have owned a home understand its true value. A home has always been a good long term financial investment. However, homeownership also has many other benefits.

In Fannie Mae’s most recent National Housing Survey, they asked the question directly: Is this a major reason to buy a home?

The study broke up the answers into financial and non-financial reasons. The top four reasons and six of thetop ten reasons were NON-FINANCIAL. The top four are below:

  1. It means having a good place to raise children and provide a good education.
  2. You have a physical structure where you and your family feel safe.
  3. It allows you to have more space for your family.
  4. It gives you control over what you do with your living space (renovations & updates).

Should this surprise us? Aren’t these the same reasons our parents bought their home? Aren’t these the same reasons we purchased our home? These are the same reasons parents have suggested their children buy a home. They want the same things for their grandchildren that they believed to be important for their children.

And today, the cost of homeownership is at all time lows:

J.P. Morgan

“The numbers on housing have an important message for American families today, and particularly younger families setting out on life’s great adventure: Five years ago, at the peak of the home-buying euphoria, it was emphatically a time to rent. Today, when home ownership is depreciated more than ever before, the numbers tell us it is a time to buy.”

MSNBC.com

“[S]omeone who plans on staying put for seven years would come out ahead by about $9,000 if they bought a median-priced home rather than being a tenant in a median-priced rental.”

HUD

“Homes today are more affordable for average families than they have been since 1971. Median-income families today have nearly double the funds needed to purchase the average home.”

Bottom Line

Now that the economy is beginning to show signs of stabilizing, people are getting back to the core values that families have always embraced. Homeownership is definitely high on that list. And today, from a financial standpoint, it may be the opportunity of a lifetime.

 This Article Was Provided by The KCM Blog www.kcmblog.com