Strict Guidelines For FHA Insurance Will Hurt Condo Market
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In order to get Federal Housing Administration (FHA) insurance on a condo unit, the building itself will have to be re-certified. This is important because without certification the buyer will be unable to get a mortgage that is insured by the FHA. These mortgages generally come with a lower down payment, and they are easier to get in terms of borrower qualifications. They are usually the first choice for first time buyers.
The sale can still be completed but the buyer will have to have a much larger down payment, and also meet more stringent credit guidelines. The impact to many borrowers is that they will sit on the sidelines for a few more years and try and save a larger down payment.
There are two basic rules that are posing headaches for condo associations.
The first is the owner occupancy rule. In order to get the FHA insurance on a unit, the condo building must have a minimum of 50 percent owner occupancy. In today’s dire economic conditions, real estate investors are the people with cash and they are willing to buy properties that are in good condition. They are looking for real estate to put on the rental market.
The second hurdle is the rule that says that no more than 10 percent of the units can be owned by one investor. What’s the harm in having an investor buy 30%, 40% or 50% of the total units? FHA officials feel that there would be too many rentals units in the condo buildings and that prices would fall further. This is far from the truth. Vacant units will drive prices down. In addition, the more vacant properties, the higher the likelihood that condo fees would increase. If you have a condo building with 600 units and 250 units are vacant, then we have only 350 owners to fund the costs of running the entire complex.
Let investors buy as much as they want. It is good for the current condo owners. If they want to sell chances are that they would get market value for their units.
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Add comment November 17th, 2011
