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HUD Restricts FHA Loans on New Condos

The Department of Housing and Urban Development (HUD) has restricted the use of FHA loans for condominiums. The new rules state that no more than 30% of the units in a condominium complex can be financed with FHA loans. To make matters worse, 50% of the units must be sold before FHA will make any loans in that complex. What??? FHA loans are ideal for first time buyers because they allow for low down payments of only 3.5%. Condos only exist in states where prices of houses are too high for first time buyers. What are first time buyers going to do? Save up 10% and finance with a conventional loan? They just took FHA away from the market it was designed for. 

The new rules only apply to new condominium complexes that get assigned an FHA case number on or after October 1, 2009. So sales in existing condo complexes can go on as before. What this will do is stop any new condo complexes from being built.

Any new condominium complexes built after October 1 will not be able to sell many units. Their target buyer will buy an existing condo instead because they can get FHA financing on that but not on the new condo. If I was a homebuilder right now, I would look at any condo complexes that I was planning. If I could get an FHA case number before October 1, I’d do it fast. Anything else I’d put on hold. There’s no point in building new homes you can’t sell.

This applies to any complexes of 2 or more units. This affects no only large builders selling condos in complexes with multiple units, but also the spec builder who is building and selling two or four condos at a time.

As the housing market is trying to recover, first time buyers will be the group that gets things off the ground. After all, they don’t have to wait until their old house sells. This will slow down that market, and effectively limit it to already existing condos.

Coleen Bennett is a real estate broker in California. Her latest interest is in green building and solar energy. Check out her new website about Solar Panels for Sale and Solar Panels Prices.

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