New U.S. Condo Regulations Provide a Leg-Up for Buyers

by Cristina Oprean
4 min. read
New US Condo Regulations Provide a Leg Up for Buyers

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If you’re looking to buy a condo in the U.S., now might be a great time to do so. Effective October 15, the Federal Housing Administration (FHA) eased condo regulations to make it easier for first-time buyers to move into homeownership. The regulation changes allow qualified homebuyers to get low interest rate loans and make smaller down payments to purchase homes in the U.S.

Help for New Buyers

Individual condo unit owners will now be able to apply for federal mortgage insurance – whether the condo association or developer has applied for funding or not. Previously, this was not possible.

After the Great Recession in 2008, the FHA no longer allowed approvals for single units. So, if a condo development’s leadership decided not to apply for federal mortgage insurance, individual condo unit owners couldn’t receive FHA financing, either.

Aside from helping new buyers, the new rule also provides current condo owners with additional options when refinancing or applying for a reverse mortgage.

Overall, property managers appear to recognize the revised regulations as a positive shift that will provide the funding needed to allow more people to become homeowners.

According to data from the U.S. Housing and Urban Development Department (HUD), approximately 15,000 developments in the U.S. are approved for the FHA’s mortgage insurance programs. Under the new rule, an additional 20,000 to 60,000 condo units could now access federal financing, as well. This means that the New York City real estate market, and others like it, could see 5,000 to 10,000 more units become eligible.

Brian Montgomery, assistant secretary for housing and federal housing commissioner for HUD, said in a press statement:

“FHA responds to what the market is telling us. This new rule allows FHA to meet its core mission to support eligible borrowers who are ready for homeownership and are most likely to enter the market with the purchase of a condominium.”

Benefits for Condo Associations

The new regulations will also likely make the application process for condo associations easier. Previously, condo developments with commercial space were ineligible for FHA funding. However, going forward, this is no longer the case; developments with up to 35% of floor area used for commercial space are now eligible for FHA’s mortgage insurance programs.

What’s more, before the new rule was implemented, condominiums that received FHA funding had to recertify every two years. Now, recertification has been extended to three years and involves a simpler process.

That being said, a limited number of individual condo units can receive financing. According to the legislation, only 10% of units – or no more than two units in developments with less than 10 units – are eligible. This policy could be a way for the FHA to prevent the new legislation from serving as a workaround for an entire condo development to apply for financing.

Yet, even with the changes in legislation, the entire condo development must meet specific requirements in order for a single unit to be approved. However, the FHA has not yet provided specific guidelines on how the process will be overseen. Consequently, if a lender finances with single-unit approval and the entire building doesn’t meet the requirements, they could be required to repurchase the loan.

Effect on Housing Market

The new rule is expected to provide a small lift to the U.S. housing market, especially with the availability of low mortgage rates. However, it isn’t expected to create a large increase in overall home sales because condos don’t represent a significant portion of the U.S. homebuying market.

What’s more, the legislation changes are being implemented at a time when real estate is very competitive for first-time buyers. For instance, low-priced housing inventory under $200,000 has decreased, and inventory of homes less than $750,000 has plateaued.

In addition, optimism about home purchases in the U.S. dipped in September after seeing an all-time high in August. Experts point to the limited financing available for condos – with their lower down payments – as one of the reasons for the lack of significant growth in that area.

Ultimately, the new regulations won’t necessarily boost the overall U.S. housing market or have a significant effect on the need for lower-priced housing inventory. However, they will help new buyers, existing owners, and condo associations through easier processes – making homeownership a reality for even more Americans.

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