FHA Certification – Mortgage Squeeze

In June 2011, FHA revised requirements condominiums have to meet before the agency insures mortgages.  Condominiums now must have no more than 15% of units more than 30 days past due with assessments.  In addition, condominiums must have at least 50 percent of all units occupied by owners.  The new standards also require that a condominium community be FHA-approved before the agency insures a mortgage for any unit within it.

Some condominiums are having trouble meeting these requirements in this economy because owners aren’t paying their assessments on time, units remain empty due to foreclosures and investor owners are renting multiple units.

FHA says the new requirements were necessary to make sure the agency could adequately back its loans.  “Many of the standards were existing but have been modified to ensure that sustainable and affordable housing opportunities are available while managing and mitigating risk to the FHA insurance fund,” says Lemar Wooley, an FHA spokesman.

One major issue is that many condominiums aren’t aware of the implications of the new guidelines or that the guidelines have changed at all says Voit.  Previously a condominium only had to be approved once for FHA backing.  Now, a building must apply for recertification every two years.

Voit says association boards don’t realize that when condominiums fail to receive FHA approval, buyers will be unable to obtain FHA-backed loans.

Typically, buyers who make a down payment of less than 20 percent must have an FHA-insured mortgage.  It’s estimated that these mortgages account for 30 to 40 percent of all mortgages in the U.S.