If you plan to purchase a new condo unit but have limited budget for a down payment, you’ll be happy to hear about the new FHA bill. The
Federal Housing Administration has announced a new bill (H.R. 3700) that brings great aid to first time buyers.
The bill lowers down payment rates to only 3.5% and also offers flexible credit as compared to other financing options.
Democrat and Republican officials do not agree much lately, but this issue is one thing that both sides approve of. Both have agreed that the FHA failed in keeping a condo finance program that benefits condominium buyers and sellers.
So in an unusual instance of bipartisanship, the Senate has voted 427 to 0, a unanimous verdict which passed a bill on this matter.
The bill requires the FHA to relax its finance regulations for condominiums. And further, to make lower down payment rates accessible for the people they need to assist.
That is, those who belong to the moderate income bracket who turn to condominiums as a more affordable choice. Many first time purchasers, and those who belong to minorities are part of this category.
Years of complaints preceded the creation of this bill. Housing and community associations, as well as others, have highlighted strict FHA regulations.
Critics noted that the FHA used to be the primary source of condominium financing, especially for first time buyers. In fact, it has assisted in funding an average of 90,000 condominium mortgages per year during the last 15 years.
But for some reason, those figures have dwindled to barely 25%. Condo financing in the first quarter of this year has plummeted by 8.6% as compared to the previous quarter.
This is reported by Inside Mortgage Finance. And in the fourth quarter of the previous year, figures also declined by 20.3% from the third quarter.
FHA’s strict regulations on eligibility for condominium financing became so arduous. They mandated complex re-accreditations of all developments every other year. As a result, thousands of condo communities left the FHA program.
The Community Associations Institute noted that there are fewer condo communities qualified by FHA. Currently, that stands at less than 14,000 out of 152,000 associations.
Individual units cannot be regarded as eligible by the FHA until they are able to evaluate the entire association. And that’s a comprehensive evaluation that includes the association’s finances, insurances, reserves, etc.
The bill (H.R. 3700) aims at correcting a number of key problems as follows:
1. The bill requires FHA to simply re-accreditations processes for condo communities. It is also required to make the compliance process significantly less troublesome. Condo experts note that this requirement alone may encourage condo communities. That is, to return to FHA funding. And as a result, this would lead to a start increase in sales and purchases to up to the thousands, and even more.
2. FHA is also mandated to ease the owner to occupancy ratio. Specifically, from the current ratio of 50% down to 35%. The new ratio would give the chance for more developments to enter the FHA program.
These low rates present a good opportunity for first time condo purchasers. In addition, this makes available 35% more of units that they wouldn’t be able to afford otherwise.
3. The new bill also permits the use of transfer fees. The FHA is now required to put an end to rejecting condo associations due to small transfer fees. Transfer fees are charges that the association collects when they sell units. These fees are used to fund community actions that in turn would benefit the residents. The FHA is now under law to mimic the actions of Fannie Mae and Freddie Mac. Both have been able to consider transfer fees that benefit communities as acceptable.
4. Another coverage of the bill is to provide better flexibility in the amount of commercial spaces. There are a number of urban condominiums that have been designed for diverse use. That is, a combination of residential and commercial features.
This simply creates economic sense, especially when considering condo locations. Under current FHA guidelines, developments with “excessive” commercial components are not eligible for funding. But under the new bill, the FHA is mandated to be flexible and to be considerate of the local market.
Analysts agree that the implementation of the bill will likely depend on two things. First, how fast the FHA applies these revised measures. Second, if condo associations are convinced to enter into the FHA program. (Thinking, “okay, they’ve gotten rid of the red tape; perhaps it’s time to give it a try”.)
The new rules will be fully implemented once President Obama sings the bill. Then, the FHA will move to make the necessary adjustments.