WASHINGTON (CN) – The Federal Housing Administration will now back more loans for Americans interested in buying their first condominium, after announcing new guidelines Wednesday for the types of insurable financing.
Part of a broader strategy to reduce regulatory barriers, the policies set to take effect Oct. 15 specify mixed-use projects as eligible for FHA financing. The rule also extends the recertification requirement for condo projects from two to three years and will introduce a single-unit approval process for FHA-insured financing for individual units.
Through the rule, the FHA estimates 20,000 to 60,000 condominiums in the country will become eligible for FHA financing, where previously only 6.5% of the country’s 150,000 projects qualified. More than 80% of first-time condo buyers have never owned a home.
The guidelines also lay out stipulations for financing approval, requiring that approved condo projects have 50% of their units occupied to qualify for financing. The FHA will require the nonresidential space of a condo not exceed 35% of the unit’s total floor area. The group also will only insure half of a condo’s total units.
FHA approvals for single-unit financing will require the unit is located in an unapproved project to qualify for financing. The FHA will insure only 10% of condos with 10 or more units, and only two units in condos with fewer than 10 units.
Paul Sliwka, president of Central Properties, a real estate company in Washington, D.C., said the greater availability of financing helps preserve the value of condos. When condos don’t offer this type of financing, he said the resale price of the property drops precipitously.
Sliwka also noted that extensions of recertification periods help to reduce the bureaucracy of constantly recertifying a property. He said opening up the FHA to mixed-use projects also was important, as mixed-use projects had previously been dominated by commercial investors.
“There’s a propensity in America, especially in urban areas, to build more mixed-use,” Sliwka said. “People like to live above the coffee house or above the store. I think that’s just recognizing the flexibility of projects. It’s always been FHA’s concern, being an investor of buildings, but I think they’re taking into consideration the fact that those investors are not like landlords owning apartments and renting out to people.”
U.S. Housing and Urban Development Secretary Ben Carson said in a statement Wednesday condos have become a source of affordable homeownership for many families, making it important the FHA assist these families with financing the properties.
“Today, we take an important step to open more doors to homeownership for younger, first-time American buyers as well as seniors hoping to age-in-place,” Carson said in a statement.
FHA Commissioner and Acting Secretary of Housing and Urban Development Brian Montgomery said in a statement Wednesday the new guidelines were a way to ensure the organization responded to the changing housing market.
“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,” Montgomery said in a statement.
The Housing Advocacy Team and the Maryland Affordable Housing Coalition, advocacy organizations that promote affordable housing in Washington, D.C., and Maryland respectively, declined to comment Wednesday. The Maryland Home Owner’s Advocacy Alliance, an organization that advocates for the rights of home owners, could not be reached for comment.