The Federal Housing Administration this week extended its current rules regarding condominium lending as it continues to work on permanent updates.
In a new mortgagee letter, the FHA implemented an open-ended extension of the existing condominium rules as laid out in previous letters released in 2012 and 2015 — essentially freezing the status quo until FHA updates the Single Family Housing Policy Handbook 4000.1 with a final rule for condos.
“This extension, without changes to existing temporary provisions, ensures that mortgagees, real estate professionals, and others may continue to work with borrowers seeking FHA-insured mortgages on condominium units in FHA-approved condominium projects,” the department said in an e-mail announcing the new letter.
The FHA requires that condo communities meet certain requirements in order for homebuyers to receive government-backed mortgages, including rules regarding insurance and the percentage of owner-occupied units.
Last fall, the agency relaxed the latter benchmark, allowing homebuyers to use FHA loans — including Home Equity Conversion Mortgages — to purchase condos in existing communities with 35% owner-occupancy, down from the previous 50% threshold. For new communities, that number sits at 30%.
The FHA also rolled out a proposed rule last September that would empower the agency to approve single units in otherwise unapproved developments, and also provide an allowable range of owner occupancy — between 25% and 75% — instead of a hard-and-fast threshold.
That proposal remains under consideration, the FHA said in its most recent mortgagee letter.
“HUD received comments to the rule and is currently evaluating those comments,” the letter reads. “This extension will allow continuance of condominium project approval until the condominium rulemaking process is completed.”
Read the full letter, 2017-13, on the FHA’s website.
Written by Alex Spanko