New FHA Condo Approval Rules Take Effect

September 24, 2012 by · Leave a Comment 

The Federal Housing Administration recently published revised guidelines to its condominium project approval process. Under the previous guidelines, many condo associations opted out of the FHA approval process, often due to the legal liability they incurred just by filling out the application. The new rules ease some of that liability, as well as increase the investor-ownership limit and the percentage of allowable commercial space in a project.

Fifty percent of units still must be owner-occupied, but FHA did tweak this rule a bit. Under the old rules, only 10 percent of units could be owned by any one investment entity. Now, a single entity can own up to 50 percent of the units, as long as the remaining 50 percent of units are owner occupied.

Also changed is the amount of commercial space allowed in a project. Previously, that limit was set at 25 percent. Now, condo associations can apply for an exception to allow up to 35 percent of commercial space (and possibly more depending on the nature of the project).

The revised rules are good news for buyers, sellers, and the real estate industry in general. Currently only about 10 percent of qualifying condo associations are certified. With the rule changes, that number is expected to rise significantly. By relaxing some of the previous approval standards, more buyers will be able to get an affordable FHA loan and join the ranks of home owners.

The new rules will remain in effect until August 31, 2014 unless extended by FHA.


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