FHA and the GSEs have different rules for the sale of a condominium versus a stand-alone single-family home. The reason for these rules goes back to a long-held belief that condominiums are more risky than single family structures. These rules have hampered the ability of homebuyers to purchase a condo, and make it much more difficult to sell condominiums. The rules include limits on the number of units that can be rented; limits on the number of units that can be delinquent in dues - regardless of the financial standing of the property; unreasonable burdens on properties to be approved; and limits on commercial space.
Condominiums are often the most affordable homeownership option for first time buyers, small families, single people, and older Americans. The current rules prevent buyers from purchasing condominiums; harm homeowners who wish to sell condominiums, and harm condominium properties that cannot turnover REOs. NAR continues to work with FHA and Freddie Mac and Fannie Mae to insure that people who wish to purchase a condominium have safe affordable access to mortgage credit.
None at this time.
Letters to Congress - FHA Condo Financing
Letters to federal agencies - FHA Condo Financing
Congressional testimonies- FHA Condo Financing
Issue summary- FHA Condo Financing
NAR Federal Issues Tracker
What is the fundamental issue?
While the Federal Housing Administration (FHA) has loosened its condominium approval requirements in recent years, many properties continue to struggle to meet overly stringent criteria and the majority of properties are being denied.
I am a real estate professional. What does this mean for my business?
Buyers and sellers of condominiums may find the property is ineligible for FHA financing, restricting the pool of buyers for that property.
Condominiums continue to be the most affordable homeownership option for many first time buyers, small families, single people, and older Americans. NAR believes that loosening FHA’s condominium rules will ensure that more homeowners will be able to sell their units, and homebuyers will have more opportunities to buy affordable properties. Furthermore, FHA promotes high density, urban living in many of their Smart Growth initiatives; easing condo restrictions should be part of this effort.Legislative/Regulatory Status/Outlook
On February 2, 2016, the House of Representatives passed H.R. 3700, the “Housing Opportunity Through Modernization Act of 2015”, introduced by Reps. Luetkemeyer (R-MO) and Cleaver (D-MO), by a unanimous vote of 427-0. On July 14, 2016, the bill passed the Senate by unanimous consent with the leadership of Senators Menendez (D-NJ) and Scott (R-SC).
On July 29, 2016, President Obama signed H.R. 3700 into law.
This legislation made four changes to FHA's current condo policy. H.R. 3700 will: 1) reduce owner-occupancy ratio to 35% unless HUD acts within 90 days of enactment of this law to otherwise lower the ratio; 2) allow lenders to approve condos with commercial space over 25%; 3) require HUD Secretary to “substantially reduce” burdens on condo recertification; and 4) require FHA to mirror the FHFA rules related to private transfer fees.
On September 27, 2016, the Federal Housing Administration (FHA) announced a proposed rule concerning single-family condominium project approval. The proposed changes include:
- FHA is asking for comment on an acceptable minimum percentage for owner-occupied condominiums between 25 and 75 percent.
- FHA is asking for comment on an acceptable minimum percentage for commercial/non-residential space limits between 25 and 60 percent.
- FHA proposes to allow single-unit, or spot, loan approval in non-FHA approved condominiums
- FHA proposes to extend the approval period for a project from 2 to 3 years;
NAR submitted formal comments on the proposed rule, asking FHA to:
- Remove the strict requirement on owner-occupancy levels, with a minimum of implementing HR 3700 standard of allowable 35% owner-occupancy without additional requirements;
- Allow 100% FHA loan concentration in buildings;
- Allow up to 45% commercial space without documentation and implement HR 3700 requirement allowing lenders to approve waivers and consider local conditions;
- Bring back spot-loan approval;
- Increase certification periods and allow for updates to information for re-certification purposes; and
- Support for new transfer fee requirement allowing beneficial transfer fees connected to condominiums.
In addition, in October, FHA published a mortgagee letter making changes to the Federal Housing Administration's (FHA) owner-occupancy requirement for condominiums in accordance with the requirements of H.R. 3700, the Housing Opportunity Through Modernization Act of 2016 (HOTMA). Under the new provisions, FHA will allow for the owner-occupancy requirement to be lowered down to 35% if:
- The project has replacement reserves of at least 20% of the budget,
- No more than 10% of the units are in arrears (more than 60 days past due), and
- The condo has three years of acceptable financial documents.
NAR continues to work with HUD and the new Administration to ensure that the final condo rules provide a real improvement in access to condominium financing.
Federal Financing and Housing Policy Committee
We've already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require a password.
Condo vs. Co-ops
Before condominiums there were co-ops—short for cooperative housing project. While common in New York (80% of the market) co-ops are also found in most large cities. There are differences between the two, as shown below.
Condo: title, same as a house
Co-op: own shares of a corporation
Condo: unit owners taxed separately
Co-Op: typically lower taxes
Condo: same as a house
Co-op: few lenders willing to give a mortgage
Deductions at Tax Time
Condo: same as a house
Co-op: more complicated
Condo: includes maintenance
Co-Op: includes maintenance, property taxes
Condo: same as a house
Co-op: less costly; sale not recorded (no title)
Source: Condo or co-op? What's the difference?, (ChicagoDownTownLiving Blog)
Condo Market Trends: What to Watch for in 2018, (Condo Living Blog, Dec. 21, 2017)
The Condo Conundrum: 10 Reasons Why There's a 'For Sale' Shortage in Seattle, (Seattle Magazine, Dec. 14, 2017)
The hottest new condo trend is reusing old buildings, (New York Post, Nov. 8, 2017)
Condominium Developments Rare, (MultiFamily Executive, Sept. 19, 2017)
Millennials, Baby Boomers agree on one thing: the condominium, (Scottsdale Independent, Sept. 15, 2017)
Greater Boston condo sellers receiving 101.1% of asking price (link is external), (Boston Business Journal, Aug. 26, 2015)
Why Isn't the Condo Market Rebounding?, (Daily Real Estate News/REALTOR® Magazine, July 22, 2015)
Thousands of condos for NYC and San Francisco (link is external), (National Real Estate Investor, June 30, 2015)
Financing Barriers Stifle Condo Resurgence, (Daily Real Estate News/REALTOR® Magazine, Nov. 11, 2014)
Reaching out to condo buyers (link is external), (New York Times, Nov. 20, 2009)
'Ghost Towers' Spur Condo Backlash (link is external), (National Real Estate Investor, July 2009) E
Existing-Home Sales, (National Association of REALTORS®)
Are Condo Hotels a Smart Investment?, (SkyFive Properties Blog, Jan. 7, 2018)
High-End Condominiums Offer Hotel-Like Amenities: 'White Glove' Services, More Go for Pretty Penny, (Orange County Business Journal, July 31, 2017) E
This used to be my playground (link is external), (The Source Weekly, July 1, 2015)
Exclusive: UK, Miami investors fashion $70M, 11-story condo hotel near SeaWorld (link is external), (Orlando Business Journal, Mar. 10, 2015)
Condo-Hotels Return (link is external), (CIRE Magazine, Nov./Dec. 2014)
Really? Condo-hotels are back (link is external), (Hotel News Now, Aug. 2014)Homebuyers Avoiding Chores Fuel U.S. Condo-Hotel Revival (link is external), (Bloomberg, July 2014)
Selling Condo Hotels: A solution to the legal problems associated with condominium hotels (link is external), (Multi-Housing News, May 2014)
Investing in Condo Hotels: Time to Cash in on Condo Hotels (link is external), (Wealth Daily, May 2014)
Condo Association Issues
Homeowner Association Liens Pose Perils for Condo Buyers, (Los Angeles Times, May 17, 2015)
Buying a Condo Using an FHA Loan, (Department of Housing & Urban Development)
FHA-approved Condominiums, (Department of Housing & Urban Development) — Search by city
FHA Condo Approval Process, (Department of Housing & Urban Development)
Living in a Housing Cooperative, (National Association of Housing Cooperative) — FAQs
eBooks & Other Resources
The following eBooks and digital audiobooks are available to NAR members:
Condo Owner's Answer Book (Kindle, eBook)
Financing Your Condo, Co-op, or Townhouse (Kindle, eBook)
Make Money with Condominiums and Townhouses (Kindle, eBook)
Books, Videos, Research Reports & More
The resources below are available for loan through Member Support. Up to three books, tapes, CDs and/or DVDs can be borrowed for 30 days from the Library for a nominal fee of $10. Call Member Support at 800-874-6500 for assistance.
Condos and co-ops, (Chicago, IL: Dearborn Real Estate Education, 2006) HD 1377 M48c
Everything you need to know before buying a co-op, condo, or townhouse, (New York, NY: AMACOM, 2006) HD 1341 R74
Condominiums: The pros and cons of ownership, (Port Orchard, WA: Windstorm Creative, 2005) HD 1377 L16
Make money with condominiums and townhouses, (Hoboken, NJ: John Wiley, 2003) HS 1377 E2
How to invest in condominiums: the low-risk option for long-term cash flow, (New York, NY: John Wiley & Sons, 2002) HD 1377 V81
The condo and co-op handbook: a comprehensive guide to buying and owning a condo or co-op, (New York, NY: Macmillan, USA, 1998) HD 1377 W86
How to buy an condominium or townhome: with sample forms and worksheets, (Naperville, IL: Sourcebooks, 1997) HD 1377 Ir9
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