Condos fulfill many needs in a real estate market. In our area they are not only a great vacation property such as those in the beach areas but they are also an affordable alternative for first-time buyers and others when prices go up.
When anything having to do with buying condos is made more difficult for any segment of buyers then that not only affects those buyers, it also makes it a little more difficult for sellers to sell since there is smaller buyer pool.
Condo Financing Difficulties
One difficulty in buying condos where FHA financing will be needed is that the condo complex has to be on the ‘approved’ list for the loan to get approved or the lender has to go through a specific process for that one buyer to get approval. Unfortunately the FHA approved condo complex list for Pinellas, Hillsborough and Pasco counties is a very short one. One reason the list is very short is that the process for what they call ‘project approval’ has been cumbersome and was only good for a limited time, at which point an involved recertification process was needed.
If you have ever had any dealings with a condo association or management company you probably know that they will not be overly excited about yet another administrative nightmare to have to contend with. So in most cases a complex that could be approved for the FHA list never did get approval and in other cases the approval it did have expired and was not renewed.
Another factor which made it more difficult for FHA buyers and thus for sellers was that FHA had a limitation on the percentage of rental units allowed in a complex and if there were any more than the percentage allowed the complex would not get approval. It is not necessarily a bad thing to have an allowable amount of rental units in a complex, but because of the market crash 10 years ago and the fact that many foreclosed properties were bought by investors…..and because some non-investor buyers run into situations where they can’t afford to keep their condo if they are unable to rent it out at least for part of the year – circumstances are different than they were 10 years ago and it hurts both buyers and sellers when a complex can’t get FHA approval due because they are just over the allowed rentals percentage.
A New Law That Helps
In February of this year, the U.S. Congress passed the “Housing Opportunity Through Modernization Act” unanimously (427-0) and it passed the Senate in July and has now been signed into law by the President.
This law streamlines both the certification and recertification process for a condo complex and extends the period until a recertification expires from 2 years to 5 years.
One way that recertification will be simplified is that a complex will no longer need to do a full re-application but rather will only need to update the information about their complex.
In addition, the allowable percentage of investor-owned property (rental units) has been increased from 50% to 65%. This means that complexes which previously were not eligible will now, in some cases, be able to qualify for FHA financing.
What This Means for You
If you are a seller, your agent will need to find out upfront if the complex can be approved for FHA financing. With the new law you will have a better chance of making it onto the FHA list but this still needs to be verified. This may make the sale of your condo easier since it will increase the size of the buyer pool.
If you are a buyer, your agent should also find out if the complex can qualify for FHA financing if that is what you need or want to use. If it isn’t currently on the FHA list, your agent should work with an experienced mortgage broker who can get the information needed to determine whether approval is possible and that should be done prior to submitting an offer.
This is good news for both sellers and buyers and if you want to find out how this may be helpful for you personally, please contact me.