by Guest Blogger - Josh Felzer, NMLS# 12150 – V.P of Sales, The Mortgage Brothers, a dba of U.S Mortgage of Florida
On October 15th 2019 the Federal Housing Administration went live with their new condominium rules (read the NAR Assesment here). This program will allow lenders to approve FHA condos individually even if the building was not previously on the FHA approved list. In the past, buyers could only utilize FHA financing on condos if the building had been approved through the very rigorous process. I have been lending for 21 years and I have NEVER been able to do an FHA loan on a condo. In our local markets of Palm Beach, Broward and Miami Dade there are ONLY 26 total buildings on the approved list (search the FHA Approved condo list here) . The new condo lending rules will allow lenders to issue “spot approvals” (Single-Unit Approvals) and will no longer require the FHA to have the building on their approved list. This will open the flood gates for any client seeking an FHA loan to purchase a condominium.
Why is this important? FHA lending restrictions are historically much more flexible compared to conventional financing. A client who normally would be pre-approved for $180,000 on FHA rarely had any options for townhouses or single family – now they can buy a condo! The government expects that this will open up financing for approximately another 20,000-60,000 new homebuyers. They also expect it could create a surge in condo values. Clients who have lower credit scores, higher debt/income ratios or low down payments will now be eligible for condo purchase. Credit scores between 500-579 may qualify with a 10% down payment. To qualify for 3.5% down downpayment borrowers will need at least a 580 FICO score. Although the minimum credit score for FHA is 500, it is suggested that you work on improving your credit score above 580 before applying.
But wait, all condominiums will not qualify for FHA financing. How do you know what questions to ask? Below are some of the bullet points for FHA condo lending that clients and agents should be aware of:
- For condo projects with 10 or more units, no more than 10% can be FHA insured; and projects with fewer than 10 units may have no more than 2 FHA-insured units.
- 50% of all units in the condo building must be owner occupied
- FHA will require a full condo questionnaire – I can provide you a copy, email email@example.com
- FHA will require a full financial review of the current year’s approved budget. They will be looking for 10% of the income to be going to a reserve account
- 3.5% minimum down payment required and 6% seller concessions are allowed
- The total square footage of the total building cannot be >35% commercial
At first glance the process appears to be fairly simple. To get a feel for the new process I put a test case through DU for a condo purchase. The test case came back APPROVED with a 56% debt ratio, 620 credit score with a 3.5% down payment. This approval shows me that the FHA has not placed any credit overlays on the new condo program and they will be approved just like a single family home would. I believe this is a WIN FOR ALL!
FHA is a popular program when buying a single family home or condominium, but have you considered buying an income producing property with an FHA loan? You would have to be an "owner occupant" - live in one unit and rent the others. Many investors start their wealth-building journney this way, so you may want to consider this option if you qualify.
These are the Florida FHA loan limits for 2019 (click here):
BROWARD $356,500 (single-family) $456,350 (duplex) $551,650 (triplex) $685,550 (fourplex)
53% of FHA Condo applications will be denied. Explore all of your options and work with an agent who will go the extra mile to help with due dilligence:
Please feel free to call or email Jeff at any time for your mortgage needs.
Josh Felzer, Branch Manager
NMLS# 12150 firstname.lastname@example.org, Mobile:215-603-5383
7284 W. Palmetto Park Road Suite 108-S • Boca Raton • FL • 33486
CONTACT: Sandra Canning, Real Estate Agent, at Sandra@FindLuxuryListings.com today for help with real estate. Cheers and thanks for visiting!!
DISCLAIMER: The information contained on this website and from any communication related to this website is for educational purposes only and not to provide legal or financial advice. Sandra Canning and ENGEL & VÖLKERS FORT LAUDERDALE also does not make any recommendation or endorsement as to any investment, advisor or other service or product or to any material submitted by third parties or linked to this website.