Learn more about our management packages today —
Call toll free (888) 565-1226

New FHA Policy Guidelines

 For those of you who live in condominiums, you know how important FHA approval can be.  Without such approval, purchasers can have difficulty obtaining financing for purchasing a condo.  (After all, FHA-insured mortgages are between 30 and 40 percent of all condominium mortgages, and FHA insurance is typically required on mortgages where there is less than a 20 percent down payment.)

FHA approval requirements have been in flux for many months.  Last week the FHA issued a “Consolidation and Update of Approval Requirements” that formalizes many of the requirements.  At a minimum under the guidelines, to be eligible for FHA financing a condominium must:


  •          have at least 2 units;
  •         no more than 25 percent of the property’s total floor area or unit can be used for non-residential/commercial purposes;
  •         no more than 10 percent of the units may be owned by any one investor or entity;
  •         all units must be 100 percent complete; and
  •          no more than 15 percent of units may be more than 30 days past due on association assessments (but an exemption can be requested in certain circumstances).

A great area of concern has been rental restrictions in condo documents.  Prior to 2008, FHA regulations at 24 CFR part 234 and policy guidance pertaining to the insurance of mortgages on condominiums allowed for certain legal restrictions on conveyance of condominiums and specifically allowed rental restrictions.  However, in 2008, new regulations were adopted at 24 CFR 203.41 which prohibited the FHA from insuring a mortgage loan used to purchase a condominium unit if the condominium documents included leasing restrictions.  There was such an uproar regarding the provision that the FHA earlier this year issued a temporary waiver for leasing restrictions, but noted that they would reevaluate the guidelines during the summer.  The FHA announcement last week made most of the waiver provisions permanent.

As a result, FHA-insured financing may be used to purchase or refinance a condo unit even if Declaration of Condominium, bylaws, or governing documents restrict a unit owner’s ability to lease their unit SO LONG AS the restrictions meet one or more of the following criteria:

1. All leases must be in writing and subject to the Declaration and bylaws of the association.

2.       The association may request and receive a copy of the sublease or rental agreement.

3.       The association may request the name(s) of all tenants, including the tenants’ family members who will occupy the unit.

4.       Unit owners are prohibited from leasing their units for an initial term of less than 30 days.

5.       The condominium association may establish a maximum allowable lease term, e.g. six months, twelve months, etc.

6.       The condominium association may establish a maximum number of rental units within the project; however, the percentage of rental units may not exceed the current FHA condominium project owner-occupancy requirement (owner-occupancy ratio must be at least 50 percent).

THE ASSOCIATION MAY NOT REQUIRE THAT A PROSPECTIVE TENANT BE “VETTED” OR APPROVED BY THE ASSOCIATION OR IT AGENTS (INCLUDING AS TO CREDITWORTHINESS), and any such current provision will almost certainly jeopardize FHA financing.So, where does that leave your association?

(1)    If your condo is considering leasing restrictions, any language MUST fall within the guidelines set forth above;

(2)    If your condo has existing restrictions beyond the permitted list, you should review and consider amending the documents to bring them into compliance with FHA guidelines (the FHA does not permit “grandfathering” or the option of ignoring existing language in governing documents).
Obviously, the FHA letter covers many issues beyond this e-mail summary (the guidelines are 95 pages long).  More guidance will also likely be issued in the coming months. If you have any questions on how this may affect your FHA project approval or bi-annual FHA project renewal please contact your property manager.

* These articles and related content on this website are provided without warranty of any kind and in no way consitute or provide legal advice. You are advised to contact an attorney specializing in Association Management for legal advice related to your specific issue and community. Some articles are provided by thrid parties and online services. Display of these articles does in no way endorse the products or services of Community Association Management by the author(s).