New FHA Condominium Guidelines Delayed Until December, 2009
Spot approvals will no longer be available and will be replaced by Direct Endorsement Lender Review and Approval Process (DELRA) which is supposed to be more streamlined and uniform. Full project approvals will expire every two years and condomniums will have to re-certify when the approval expire.
New Project Eligibility Guidelines
Under the new project eligibility requirements, all condominiums (consisting of 2 or more units) must meet the following requirements:
- At least 50% of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 % of the number of presold units (the minimum presale requirement of 50 percent still applies).
- Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.
- At least 50% of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan.
- No more than 15% of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.
- No more than 25% of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogeneous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.
- Reserve Study – a current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance. A current reserve study must be no more than 12 months old – if recent events or market conditions have affected the finished condition of the property that information must be included. When reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed. The regulations don’t define what is “adequate,” however. The new Fannie Mae Guidelines mandate at least 10% of annual operating budget in reserves.
- No more than 10% of the units may be owned by one investor. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100% complete; and only one unit can be conveyed to non-owner occupants.
- Rights of first refusal are permitted unless they violate discriminatory conduct under the Fair Housing Act.
There is also a requirement for an affirmative action-type housing plan. For both new construction and conversions, if the developer intends to market 5 or more units within the next 12 months with FHA mortgage insurance, an Affirmative Fair Housing Marketing Plan (AFHMP) or a Voluntary Affirmative Marketing Agreement (VAMA) must be in place. Affirmative fair housing marketing plans require that the racial, socioeconomic, and ethnic composition of the condominium residents closely mirror that of the neighboring area, to the greatest extent possible. Most new condominiums do not have these plans in place.
