FHA rule change makes building condos easier - Jean Pierre Bansard Commercial Real Estate Development Firm.
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FHA rule change makes building condos easier

FHA rule change makes building condos easier


The Federal Housing Administration is making it easier for first-time condo buyers, often with less than perfect credit, to get mortgages.

The new condominium approval rule, which goes into effect Oct. 15, will help reduce regulatory barriers. For example, the new rule will allow certain individual condominium units to be eligible for FHA mortgage insurance even if the condominium project is not FHA approved. (The condo unit needs to be in a completed project for approval.)

The change introduces a single-unit approval process making it easier for individual condominium units to be eligible for FHA-insured financing. It also extends the recertification requirement for approved condominium projects from two to three years, and allows more mixed-use projects to be eligible for FHA insurance.

Condos under construction Wednesday at 825 Crisman Dr. in Longmont. (Photo by Jeremy Papasso/Staff Photographer)

The FHA’s backing makes the projects more marketable, said Brian Sullivan, spokesman for the U.S. Department of Housing and Urban Development. The rule change is expected to annually make 20,000 to 60,000 condo units eligible for the FHA-insured financing. The loan limit backed by the FHA for single-family mortgage insurance in Boulder County in 2019 is $626,750, up from $578,450 a year ago, Sullivan said. There are 2,722 active FHA-insured mortgages (not including reverse mortgages) in Boulder County, he said.

Though the change is not expected to create immediate ripples in the condo market in Boulder County, many Realtors and lenders see it as a welcome option for many buyers who have been on the sidelines.

“We are actively marketing that. We have been tracking that,” said Noel Bennett, branch manager, Premier Mortgage Group in Boulder.

The change works for people with lower credit scores and higher debt-to-income ratios, he said. For those with a FICO score of 680 and lower, the FHA’s backing becomes more attractive for lenders, he said.

The FHA provides mortgage insurance on loans made by FHA-approved lenders, protecting them from the risk of borrower default. Conventional loans, which require a higher score and a higher qualification threshold, are backed by private mortgage lenders. VA loans that help service members, veterans, and eligible surviving spouses become homeowners are backed by the U.S. Department of Veterans Affairs. VA, like FHA does not lend money, but insures qualified lenders.

Borrowers need to quality for loan programs, including those backed by the FHA, Bennett said. There won’t be a big wave of buyers, he said. First-time homer buyers are not buying in Boulder, he said. They are looking at Louisville, Erie, Superior, Longmont and in nearby counties, which offer cheaper housing options.

In Boulder, recently some condo projects have been developed as rental units, said Kurt Firnhaber, the city’s director of Housing and Human Services. Until recently Colorado’s construction defect laws that exposed developers to legal liability issues, inhibited condo projects, he said. (In 2017, a reform bill was passed by the state Legislature that required homeowners associations to obtain approval through a vote of unit owners before filing a construction defect action.)

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Commercial Real Estate CEO Jean Pierre Bansard

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