Back in June of this year, HUD issued new rules about FHA financing on condominium projects. These new rules were to apply to new condo developments not assigned an FHA case number by October 1, 2009. That date has since been pushed back to November 2, 2009.
When a home builder develops a condominium project, they submit an application to HUD. Assuming that the development meets HUDs requirements, they approve it and assign an FHA case number. This means that buyers can get FHA financing on units in this project.
FHA loans are tailor-made for first time buyers, the same kind of people who often buy condominiums. Among other things, they allow a buyer to get in with a low down payment of only 3.5%.They’ll approve a buyer with a less than perfect credit history. A condo financed with an FHA loan is the perfect way to get your foot in the door in a high cost real estate market, like much of California.
Under the new rules, no more than 30% of the units in a complex can be financed with FHA loans. Worse than that, 50% of the units must be sold before FHA will make any loans in that complex. Without FHA loans, buyers will have to turn to conventional loans, which usually require a 10% down payment. Many buyers simply won’t be able to do that. Instead they’ll go buy a condo in an existing complex. New home builders won’t be able to sell their products.
There is hope, though. In response to the outcry from lenders and builders, HUD is reconsidering. They’ve delayed the implementation from October 1 to November 2, and indicated that they might consider relaxing the other restrictions.