September 28, 2016

FHA proposes relaxed condo rules

The Federal Housing Administration this week proposed relaxed restrictions for agency-backed condominium loans to streamline the process and boost lending to first-time homebuyers.

The proposed rule would extend the recertification period for condo developments from one year to three and give flexibility to properties with commercial tenants. The FHA is also requesting comments to help determine a new owner-occupancy level – the proposal suggests a level between 25 percent to 75 percent. The current requirement is that 50 percent of condo units be owner-occupied to qualify for FHA funding.

The comment deadline for the proposal is Nov. 28; however, legislation passed in July will require the FHA to finalize a new occupancy threshold by the end of October. The legislation, part of the Housing Opportunity through Modernization Act (H.R. 3700), will impose an automatic level of 35 percent if the FHA does not settle on a number in time.

In November 2015, the FHA announced the relaxation of restrictions on agency-backed condos for one year while it worked on longer-term rules. The changes allowed tenant-occupied condos or condos listed for rent to count toward the current 50 percent owner-occupancy requirement.