FHA Condo Rules Revised

In Mortgagee Letter 2009-19, HUD outlined a new approval process for condominium projects. The changes are in accordance with the Housing and Economic Recovery Act of 2008, which became law in July 2008.

FHA lenders will have the option to obtain condominium project approval through HUD’s review and approval process, or determine project eligibility themselves with a direct endorsement lender review and approval process. They will also be able to review project documentation and certify compliance with Section 203(b) of the National Housing Act and 24 CFR 203 of HUD’s regulations.

The changes are effective on case numbers assigned on or after Oct. 1 for developments that are not yet fully constructed, existing construction and conversions.

HUD said condominium hotels, timeshares and houseboat projects are ineligible.

Site condominiums, which are single-family detached properties encumbered by a declaration of condominium covenants or condominium form of ownership, do not require project approval. This change is immediately effective. FHA refinances of FHA loans also don’t require project approval.

The spot loan approval process has been eliminated entirely because the other two methods have been streamlined.

Environmental reviews won’t be required if construction has progressed beyond where HUD can influence uncompleted construction. Environmental reviews also aren’t required when lenders determine project approvals themselves. If the lender learns of an environment condition, then it must address and mitigate the issue.

The minimum number of units for a complex is two, though only one unit can be FHA-financed if the project has three or fewer units.

At least half the units must be sold, and half of the units must be owner-occupied. FHA won’t insure more than 30 percent of the total units.

A maximum of one-quarter of the project can be for commercial use that complements residential living. No single investor can own more than 10 percent of the units. Association-fee delinquency of at least 30 days can’t exceed 15 percent.

A one-year waiting period for conversion condominiums has been eliminated.

Manufactured housing condominium projects are now eligible for FHA financing. Requirements under other FHA programs for manufactured housing also apply for project approval.