"All Things Edmonds" Blog

December 7, 2009 -- On Monday, the Federal Housing Administration started limiting the number of buyers in condo buildings that can get loans insured by the agency. The rules also put restrictions on buildings with poor finances, too many delinquent owners and a high number of rentals.

First, a little background for you...
The Federal Housing Administration (FHA) determines which condo complexes throughout the country are eligible for FHA financing. If you are looking to get an FHA-insured loan, you can only purchase a condo within a complex that is FHA-approved. It used to be that you just found an FHA-approved complex (with the use of a resourceful Realtor) and were good to go. But on Monday, FHA adds newer restrictions -- even beyond just finding approved complexes.

Why not just get "conventional" financing? Well, with a minimal requirement of just 3.5% down, FHA loans are a very attractive option for many home buyers. And with default rates on FHA-insured loans at about 18%, the FHA is looking for more security. I wrote more about lending restrictions on FHA loans in an earlier blog. For those complexes that are approved, there are new restrictions.

Here's a summary:

• Only half of all units wiithin a complex are allowed to be FHA financed (the others being conventional loans or other financing).
• In 2011, this number goes down to 30%.
• There has been talk that the minimum down payment threshold of 3.5% may go up. No word yet on how much but if they are as arbitrary as I think, it might be 5%.
• It's not all bad. The FHA has relaxed the numbere of pre-sold units that must have already closed before the lend money to anyone. It used to be that 50% of new buildings had to be sold; that number is now 30%.

So, if you're considering purchasing (or even selling) a condo in Edmonds, keep in mind that there are new guildelines that your lender should be aware of. Ask first; you'll save some time and heartache. 

Now I'm off to educate my own condo clients....