In October, the Federal Housing Authority (FHA) will issue a new set of rules for using FHA loans to finance condo purchases. This is good news for buyers who have smaller budgets and live in more urban areas with a high volume of condos to choose from. By relaxing some previous building qualification standards, the new rules could make it much easier for FHA loan candidates to buy condos.
Condos, FHA Loans and Affordability
Housing affordability is a major issue for a lot of people, and it can be a major barrier to entry for homeownership. However, buyers may be surprised to find that homeownership is within reach thanks to FHA loans. These loans are an affordable, flexible option for buyers, particularly those who need some flexibility with credit requirements or don’t have the funds to provide a full 20% down payment. Plus, FHA loans are considered a reliable, financially prudent option for borrowers who may not meet qualification requirements for other mortgage types.
Similarly, condos can be an appealing option for buyers with smaller budgets. In addition to typically costing less up front, condos can be less financially burdensome to maintain because they don’t require regular lawn maintenance. Condo owners may also find that their property tax bills are lower due to the smaller overall square footage of their property.
How the Rule Change Will Benefit Buyers
Before this rule change, there were some specific guidelines in place that made it harder to use FHA loans to purchase condos. For example, buyers could only use FHA loans to finance condo purchases in buildings that had specific FHA approval. This limited the pool from which buyers approved for FHA loans could shop for their new condo.
According to Sr. Mortgage Specialist Dawn Carter, things are about to get more flexible. “The change will potentially allow a buyer to purchase a unit in a complex that was previously disallowed,” Dawn says. This means that condo shoppers will have more options to choose from, which can be helpful for those on a tight budget. Ultimately, these rule changes are designed to put homeownership within reach for more people by providing more flexibility and opening up more inventory to FHA financing.
Other Rule Change Factors
Though the new rule change is designed to make it easier for FHA loan candidates to purchase condos, there are some restrictions to be aware of. You may see potentially discouraging information about FHA condo financing if you do research on your own, including the fact that only a limited number of units in each building may be purchased with FHA loans. Even under the new rules, only 50% of the condos in a given building can have FHA loans attached.
This is where it becomes important to go over mortgage-related information with a seasoned expert. According to Dawn, it’s very rare for clients to have issues with this rule. “Historically, I’ve never seen FHA concentration exceed 20%,” she says, “so this should be a non-issue.”
Still, buyers should be aware that buying a condo with an FHA loan requires a few more approval steps and conditions. Working with an attentive, communicative Mortgage Specialist from a local lender like Directors Mortgage can help make that process much easier for buyers hoping to purchase a condo.
Taking the First Step Toward Homeownership
If you’re hoping to become a homeowner and think a condo is the ideal housing option for your budget and lifestyle, it could be that an FHA loan is the right fit for your financial situation. However, it’s important to make sure you’re armed not only with knowledge but also with the right team of real estate professionals to advise and guide you through the condo-buying process.
An experienced Mortgage Specialist who has familiarity with condo purchases will be able to provide you with unique insight that helps clarify the FHA’s rules and put them in a real-world context. That sort of information is invaluable when it comes to the lending process because it can help you avoid big misconceptions that lead to missteps. Dawn Carter’s advice is simple: “work with a lender and Realtor who will go the extra mile for you.”
Your lender can help you identify a good Realtor who’s willing to go that extra mile and has experience working with FHA-backed condo purchases, so getting in touch with your local Directors Mortgage branch is a good first step. If you’re ready to learn more about how an FHA loan might help you become a homeowner, reach out to an experienced Mortgage Specialist today.