FHA Occupancy Rate for Condos CC

Earlier this year, Congress passed, and the President signed into law, legislation which directed the Department of Housing and Urban Development (“HUD”) through the Federal Housing Administration (“FHA”) to consider a reduction in the required percentage of owner-occupied units in an FHA approved condominium complex. The current FHA rules require a minimum of 51% owner-occupied units in FHA approved complexes. If that percentage dips below 51%, units in the complex were ineligible for FHA financing, meaning that many buyers who relied on the availability of low-down payment FHA loans would were not able to buy a unit in such complexes. This in turn depressed the prices in such complexes, and made the remaining owner-occupied units harder to sell.

The new rules will now allow for a lower percentage of owner-occupied units if certain criteria are met. Those criteria aim to insure that the complex is still financially strong despite the increased number of units rented by absentee owners. If a complex meets the new criteria, the owner-occupied percentage can be as low as 35% of the units. The applicable criteria that FHA will review include a requirement that the complex be at least 12 months old, no more than 10% of the units in arrears by more than 60 days, and financial reserves set aside for capital improvements of at least 20% of the condo budget. It is expected that these changes will allow more complexes to be eligible for FHA financing, increasing the number of potential buyers and helping to maintain property values in those complexes.

For the full details on this change, the FHA mortgagee letter issued by HUD which implemented the new requirements can be reviewed here: https://portal.hud.gov/hudportal/documents/huddoc?id=16-15ml.pdf


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