Condos and the FHA

Apartment buildings near a waterfront.

Federal Housing Authority (FHA) loans have long been the go-to option for low and moderate-income homebuyers. Since FHA loans only require a 3.5% down payment, they’re a great option for those who might otherwise not have been able to pull together a larger amount of up-front cash.

But one of the recent problems that has cropped up with FHA loans recently has to do with condos. Since condos tend to cost less than homes, a condo and an FHA loan seem like a perfect fit.  They would be, except that policy changes are now creating prohibited lending zones in thousands of condo communities across the country.

The problem is that the FHA is now requiring entire condo communities to pass their stringent certification processes. Previously, the FHA would consider “spot loans,” mortgages on condos that were in questionably run or funded communities. But those days are gone.

The FHA claims to have revised its procedures to eliminate fiscally weak, badly managed properties in an effort to reduce any upcoming losses to which taxpayers would be exposed. Condo boards argue that a number of the FHA\’s processes to secure certification are too bureaucratic and that the criteria for evaluation are too strict.

Regardless of who is right, since revising the financing rules, FHA financing approval for condominium developments has dropped by more than 50 percent.

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