In our marketplace, especially within the condo market, FHA has not been utilized to all of its potential. It is not for lack of trying. It is based solely on the phrase: “Right of First Refusal."
This little phrase has been the consternation of many REALTORS, lenders and our clients/customers. How can four words cause so much ill will? They are merely words. But when inserted and recorded into a Condominium Declaration and by-laws, the result is that FHA financing cannot be used when purchasing a condominium.
How is this possible you ask? Well, HUD sees this as an interference with disposition of property. HUD wants the owner to be able to sell their unit without the association having the right to first review and approve, or review and refuse. This is sticky when taking fair housing laws into consideration, with regards to source of income, which is a protected class in Chicago.
How the buyer is impacted is they now have go from a 3% to 5% down payment to potentially a 10% to 15% down payment. If the unit is in need of repair, FHA may also not be an option. Also, product is limited. Click here and you can assist your client in finding out whether the condo they would like to purchase is approved for FHA financing.
Don't get depressed or disheartened.
Here's the good news: NAR has been working on legislation with the Department of Housing to enact some changes in this policy. The legislation will make it easier to purchase a condominium or cooperative with FHA insurance. The bill moves condos and co-ops into the 203b single-family fund at FHA. This will allow FHA to remove many of the burdensome requirements these loans have carried in the past. Site reviews will no longer be required, and FHA approved lenders will be able to approve and process condo loans without further review. The one-year waiting period for conversions will be eliminated, and right of first refusal projects will be permitted. We also expect FHA to slightly lower the owner/occupancy ratio requirements. These changes are not expected until January 1, 2009.
C.A.R. has an FHA toolkit online that has many of the recent updates for your use.
I say get ready, set and go for January 1, 2009. How are you incorporating FHA into your business plan? Let us know.