How well have new FHA financing rules for condos worked?

Kristi Bailey 2020 NETAR President


New FHA financing rules for condominiums were put in place late last year to open ownership to more first-time buyers. It was a pre-pandemic decision when it looked like affordability was a top housing market challenge.

It’s still a concern. But it has taken a backseat to buyers who had been forced to take a second look at their homes. Many now want more elbow room to shake off the lingering effects of lockdown cabin fever and the realization that working from home and homeschooling are going to stick around.

When the new rules were put in place, The National Association of REALTORS® (NAR) said it satisfied many of the changes the association has backed for more than a decade. Here’s how REALTOR® Magazine explained the top things the new rules would do:

“Extend FHA certifications on condo developments from two years to three years, with an additional six-month grace period to meet requirements. This will alleviate some of the cost and time burdens on condominium associations that intend to maintain FHA approval. 

“Allow for single-unit mortgage approvals—often known as spot approvals—that will enable FHA insurance of individual condo units, even if the entire property does not have FHA approval. The condo building in which the FHA buyer wants to purchase must meet certain requirements: The property must have at least five units, a limited concentration of FHA-insured units, at least 50% owner-occupancy, and a maximum of 35% commercial space.

“Secure additional flexibility in the ratio of investors to owner-occupants allowed for FHA financing in a condo building. While the current owner-occupancy requirement is 50%, HUD may approve an owner-occupancy level as low as 35% for older properties with less than 10% of units in arrears. Individual investors can purchase no more than 10% of units in a property with more than 20 units and no more than one unit in properties with less than 20 units.”

Locally the townhomes and condos have played an increasing housing market role. And they are experiencing solid growth so far this year. Some of that growth is higher than the single-family market. November’s townhome sales were 32.6 percent higher than November last year. During the same month, single-family resales were up 22.7 percent.

So far this year, the townhome-condo 11-month growth rate is 5 percent compared to the single-family 5.9 percent growth rate.

A comparison of the median sales prices shows the townhome-condo year-to-date median price growth rate is 10.4 percent. The single-family rate is 10.6 percent.

The townhome-condo market doesn’t have the popularity or area-wide distribution of single-family homes. With a couple of exceptions, they are city products. But they are increasing their position and market share in the existing home sales market.

And don’t get too wrapped in the terms condo and townhome. They are more about ownership than architecture. You can live in a structure that resembles a townhouse but is actually a condo. It depends on your ownership rights. This is where partnering with a professional REALTOR® can be a critical asset for those checking out opportunities afforded by new financing rules. REALTORS® have the resources, contacts, and local market knowledge to help guide clients through the confusion of new rules and an increasingly competitive housing market.

NETAR is the voice for real estate in Northeast Tennessee. It’s the largest trade association in Northeast Tennessee, Southwest Virginia region representing over 1,400 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. Pending sales, monthly Trends Reports, and the regional market analytics can be found on the NETAR websites at .

NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,800+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at