FHA loan now easier to get in Condo Communities
A longstanding piece of housing legislation recently passed through Congress has made it easier to purchase a home, according to many experts with a FHA loan. H.R. 3700, or the Housing Opportunity Through Modernization Act will make the FHA’s re-certification process easier and lowers the FHA’s owner-occupancy requirements from 50% to 35%. For condo communities, this means that there will be a considerable increase in eligible buyers flooding the market.
The bill also introduces a new provision that requires the FHA to replace existing policy transfer fees in conjunction with the model in place at the Federal Housing Finance Agency.
So what does this mean for HOAs?
Simply, condominiums just got much more affordable, as more prospective buyers now face less restrictions for qualifying for FHA-backed mortgage loans. Lower down payments will follow, along with more lenient credit requirements such as lower credit scores and higher debt-to-income ratios. This is also a sharp contrast over the several years of federal legislation, which, after the housing crisis, greatly restricted qualifications for condo-related FHA loans. Indeed, condos purchased via FHA loans dropped to one of its lowest levels last year, with fewer than 25,000.
As a condominium community, it’s important to keep this in mind. With lower credit scores and lower debt-to-credit ratios required for applicants, there is a relatively higher chance that your new neighbors may not be financially sound. This was a big issue during the housing crisis, but the federal government has deemed that the market is ready to loosen the purse strings a little bit. The law has even lifted the required transfer fee to be paid to the association when a unit is sold. But it’s not without its interpretations. The Department of Housing and Urban Development has also stated that a community can deviate from the instituted occupancy cap if they can prove that the local market conditions require a different percentage – which is often the case with California real estate.
It’s also important to note that the typical purchase price of a home in California usually exceeds the FHA spending limits. Oftentimes, loan amounts are adjusted accordingly with the state’s market; however that is not the case with the maximum FHA loan amounts.
This means that California may not get a huge increase in condo buyers if the requirements are decided by the local market, as the law suggests. Time will tell what it means for our community, as it could be very little, or a lot. If you live in a condo community with many vacant units, it may be a good idea to start preparing for some new neighbors.
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