Is FHA Ready to Ease the Requirements for Mortgages on Condominiums?

The Federal Housing Administration is apparently readying changes to its controversial condominium rules that have rendered large numbers of units ineligible for FHA financing.  It appears that the revisions could remove at least some of the obstacles that have dissuaded condominium homeowner association boards from seeking FHA approvals or re-certifications of their projects during the past 18 months. Under the agency’s regulations, individual condo units in a building cannot be sold to buyers using FHA insured mortgages unless the property as a whole has been approved for financing.

Recently the FHA’s rules have become overly strict. Barely 25 percent of all condo projects that are potentially eligible for FHA financing are now approved.

The largest restrictions imposed by FHA include non-owner occupancy rules requiring 50% of the units in a project or building be non-owner-occupied, and the FHA rule that requires that 85% of the units be current on their dues. FHA also sets a cap of 25 percent of the total floor space in a project for commercial use and has a very controversial rule which creates severe legal liabilities for condo board officers including personal liability and criminal responsibility.

FHA is expected to clarify the personal liability language and make other modifications in its forthcoming rules.  Time will tell if the rules will encourage condominium boards to apply for approval by FHA.