For a fleeting moment in 2011 and even into a good part of this year downtown Minneapolis condos and lofts was in question for a financing standpoint. That's because so many building's FHA status was expiring.
This was forcing the homeowners association boards to resubmit updated highly detailed documentation to FHA regarding the finances of their respective building. One of the questions asked by FHA as part of the approval process involved the amount of renter to owner units in the building. Another question referenced the amount of commercial to residential square footage of the building. Still other questions asked about the balance sheet of the building along with the most recent copy of the budget. FHA wanted to ensure every building had a proper savings plan in place to sustain future capital improvements as opposed to seeing surprise assessments that haunt poorly managed condo projects.
On September 13th, 2012, FHA issued guidelines that ease its rules for condo and loft financing, including changing the condo-to-commercial ratio as well as the owner to renter ratios. This has come as a boon to condo buildings seeking FHA approval.
Under the new policies, FHA agency can approve loan applications for condos in projects that have as much as half of their space devoted to commercial use, up from 25 percent before the change. That’s an especially important shift for mixed-use projects, which devote ground-floor space to stores and restaurants and upper floors to residences.
The FHA announced four main financing changes. In addition to the condo-to-commercial ratio, the agency is allowing single investors to buy up to half the units in a project, up from 10 percent previously. That move is as likely to help suburban and urban markets as resort areas.
The other two changes touch on late home owner association dues and condo board certification. The FHA says it will OK loans on projects in which 15 percent of the home owners are 60 days late on their HOA dues. That represents an easing from the previous 30-day delinquency limit.
The certification change concerns the liability risk of condo board representatives. Previously, officers had to confirm that they had “no knowledge of circumstances or conditions” that could adversely affect the building. But many representatives are volunteers who have been reluctant to take on that legal responsibility. The language has been softened and now recognizes boards’ good-faith efforts to verify condo information.
Additional changes pertaining to policies that limit buyers’ access to FHA condo financing. A major impediment now in place is the requirement that at least half the units be owner-occupied. That’s a particularly tough restriction in resort areas where many units are attractive investments as short-term vacation rentals. Any changes would require a new FHA rule, which could happen early next year, NAR analysts say.
The FHA used to allow “spot approvals” of FHA financing for units in newly constructed projects that weren’t yet FHA-certified. Those approvals stopped during the mortgage crisis, and practitioners would like to see their return. “In our area, condo financing rules are the No. 1 complaint for getting properties sold,” says Harvey. “So, this is really welcome, but more needs to be done.”
