November 10, 2019

New FHA financing rules for condos are now in place


2019 NETAR President


New FHA financing rules for condominiums intended to open the door to more affordable housing are now in place.

The National Association of Realtors® (NAR) indicates the new rules satisfy many of the changes the association has backed for more than a decade. Here is how Realtor® Magazine explained the top things the new rules will 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.”

“It goes without saying that condominiums are often the most affordable option for first-time home buyers, small families, and those in urban areas,” NAR President John Smaby said in a statement. “This ruling, which culminates years of collaboration between HUD and NAR, will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people.”

Locally the townhomes have played an increasing housing market role for the past three years. Resales this year have not seen the big growth numbers they did in 2017 when they were up 28%. It is hard to sustain that type of growth, but townhome resales have totaled more than 500 a year every year since 2017. They are on track to do the same this year. In fact, the year-to-date September total is one closing more than what they were during the first nine months of the record-setting year.

In September, the regional median condo/townhome sales price was $119,000 compared to $158,700 for a single-family home. That is a big deal in a market where affordability standards have steadily declined. Statistically, the average local wage earner has enough buying power to buy a median-priced home. However, there are more than twice the number of single-family homes outside the affordability range listed than those that are in the affordable price range.

Don’t get too wrapped in the words condo and townhome. These styles are more about ownership than architecture. You can live in a structure that resembles a townhouse but is actually a condo in your ownership rights—for example, you own the structure but not the land it sits on. 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 1,300 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 .