The United Stated Department of Housing and Urban Development (HUD) administers the mortgage loan program offered under the Federal Housing Administration (FHA). FHA loans are generally easier to qualify for than conventional loans, and require a lower credit score than most conventional loans. FHA loans also only require a 3.5% down payment, a portion of which can be seller paid closing costs. Currently, about twenty percent of all home purchases are made using FHA loans, so any changes to the FHA loan criteria will have a large effect on the housing market. Due to the low down payment and easier qualifying criteria, FHA loans are especially popular with first time homebuyers, who may not have saved the funds necessary for the down payment required for conventional financing, or who may not otherwise qualify for such conventional financing. In fact, it is estimated that 75% of FHA loans are to first time homebuyers. However, the standard FHA loan program is limited to owner-occupants, and is not available for investment properties.

We have previously written about the FHA loan program, specifically regarding issues that some condominium complexes face due to the FHA approval requirements for the complex to be considered eligible for FHA financing (See GPS Blog Post from November 16, 2016). The FHA has recently taken a further step to ease the use of FHA loans in condominium complexes. Effective October 15, 2019, an individual unit can be approved for an FHA loan, even if the entire complex is not approved, on a “spot approval” basis. The introduction of this spot approval process should prove to be less cumbersome than the approval of the entire complex that was previously required. FHA also reduced the minimum owner occupancy percentage in a complex to 50%, which is expected to increase the number of complexes eligible for borrowers using FHA loans.  The FHA stated that between 20,000 and 60,000 more condo units could be financed because of these changes. Currently only 6.5% of condominium complexes have HUD approval for FHA loans. Further information can be found here: Read More.

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