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Buying A Condo Gets Harder
Stricter FHA Guidelines Pose A
Challenge For Condo Associations
November 11, 2011

For borrowers looking to buy a condo and get Federal Housing Administration (FHA) insured
financing, time might be their worse enemy. FHA has changed the rules and therefore condo
buyers will have to get a much larger down payment.

The changes in requirement were made in 2009, and there are only 10% of the country's
condominiums that have received recertification. According to the Department of Housing and
Urban Development  (HUD) there were 25,000 certifications that expired as of September 30,
2011. Only about 2,100 condo projects have been re-approved for FHA insured mortgages.

The road blocks for several condo associations, according to HUD, were too many investor
held units, not enough money in the reserve fund, and insufficient insurance coverage.

Many lawmakers, including the influential Barney Frank (D-Mass), seem to think that the new
requirements placed on condo associations are too strict. Mr. Frank is asking HUD for a public
review of the guidelines as well as a reconsideration of the condo fee limits in light of the
current economic conditions.

Condo projects applying for FHA insured mortgages can not have more than 15% of the units
delinquent more than 30 days in condo fee payments. Furthermore, the condo associations
can not levy special assessments or take out loans to make improvements.

The approval process took effect in December 2009. It requires condo projects to be
re-approved every two years. This makes December 7, 2011 the latest date for recertification
for thousands of projects.

The Community Association Institute said that if the new guidelines remain in place fewer
condo association will be able to pass recertification. This would lead to fewer buyers being
able to get a mortgage that is insured by the FHA. There are obviously other mortgages
available. However, condo sellers believe that the typical condo buyer does not have
thousands of dollars available for a large down payment.

Here are some of the highlights of the changes.

A minimum of 10% of the annual budget must be held as the reserve fund and be kept in the
bank.

At least 50% of the units must be owner-occupied for projects built longer than a year ago.

A single investor can not own more than 10% of the units.

No more than 25% of the space can be used for commercial enterprises.

30% of the units must be sold before a mortgage with FHA insurance will be approved.

In the current economic climate these new rules will make it extremely difficult for even
financially healthy condo projects to meet all of them. The FHA passed these rules in an effort
to protect taxpayers and the government from insuring bad mortgages. However, the condo
market has already crashed. There are thousands of empty units sitting empty. This puts extra
burden on the current owners. If there is an emergency the existing owners might be called
upon to contribute more financially.