FHA Delays New Rules

The Federal Housing Administration (FHA) has delayed the implementation of rules that could make life more difficult for condo buyers across the country. The delay should be especially helpful for those hoping to qualify for the first-time buyer tax credit that expires after Nov. 30.

The new FHA rules, which were to take effect Oct. 1, will now be effective on Nov. 2. They are designed to improve the lending process, but they could cause some short-term delays in completing loans and closing purchases.

Now, buyers trying to close a transaction by Nov. 30 should be able to file their FHA loan applications early enough to qualify under the old regulations.

The importance of FHA financing has grown substantially in the last few years because conventional mortgage financing has become harder to obtain due to more stringent underwriting requirements. According to some estimates, 25 percent of homes purchased this year in the United States will use an FHA insured mortgage, up from 2 percent just three years ago.

The new FHA regulations now will apply to all mortgage applications received on Nov. 2 or later. Files initiated prior to Nov. 2 will be processed under the old regulations, even if the loan does not close until after Nov. 2.

The new FHA regulations taking effect Nov. 2 also contain other restrictions that could make life more complicated for condo buyers. Here is a partial list:

– At least 50 percent of units in the project must be owner occupied or under contract to owners who intend to occupy them. For new construction, the 50-percent-owner-occupied rule applies to those units closed or under contract.

– For new construction condominiums, at least 50 percent of the total number of units planned must be sold or under contract before an FHA insured mortgage can be closed.

– No more than 25 percent of the total floor area of a condo property can be used for commercial purposes.

– No more than 15 percent of the units can be more than 30 days past due on their assessment payments to the condominium association.

There is, however, some good news for borrowers in the new FHA regulations. For example, they eliminate the long-time prohibition against the FHA financing units in condominiums where the homeowners association retains a right of first refusal.

Another change allows the FHA to insure loans in new condo conversions for any qualified buyer. Previously, only former rental tenants could get FHA financing for the first 12 months.

The changes in FHA regulations are just one example of the current environment. It has seemed as if lending requirements have been changing on a daily basis this year.

If you have questions about the new FHA rules that we didn’t cover here, then just use the comment link below to contact us and we’ll try to get the answers to your questions. Remember, as always, your email address will never be published on this site, even though it is required in order to post a comment or question.