Over the holidays, HUD made 3 changes aimed at HOAs and paving the way for FHA lending in condo developments.
The HUD press release terms these changes as "temporary" as the 90 day period for "public comment" has not yet elapsed; at which time these changes are deemed permanent.
Streamlined Condo Recertification
First, HUD has made it easier to "recertify" a condo project that is already FHA-approved.
Existing guidelines require condos to get re-certified every 2 years to ensure the project is still in compliance with FHA eligibility rules.
Formerly the process needed to start 6 months before expiration, so it was a constant bureaucratic nightmare.
Now, FHA will only require applicants to submit documents if there are “any substantive changes” since the project’s prior approval”.
So unless litigation or construction defects arise, click here for forms:the re-application process will be a “streamlined process” making it easier-cheaper-quicker for projects to renew and maintain their eligibility.
Eased Occupancy Requirements
FHA will be making a (very) minor change as how it “defines & calculates” owner-occupancy.
At least 50% of the units in a condominium project (still) must be owner-occupied in order for borrowers to obtain FHA financing.
But FHA will NOW consider a condominium “owner-occupied” provided they are not:
• Tenant occupied;
• Vacant and listed for rent;
• Vacant and listed for sale; or
• Under contract to a purchaser who does not intend to occupy the unit as a primary or secondary residence*.
*In other words if your transaction’s HOA has a 49% occupancy rate AND there are several listings pending in escrow, you will want to get copies of the pending RPA's (from the other agents) to prove the buyers are “moving in” in order to elevate occupancy rate to 50% and get your buyer’s loan approved.
Another “re-definition of occupancy” is “Second” and “Vacation” homes.
Both will NOW count toward the “owner occupancy rate” BUT don't depend on the either the HOA or the appraiser to make the “distinction”,in order to elevate occupancy rate to 50%, this responsibility primarily rests with the listing agent and the seller.
Eased Insurance Requirements
This a critical change that affects HOAs with have more than one or “overlapping” associations.
Now, instead of EACH HOA having 100% insurance coverage for their project; HUD now accepts an expanded array of “master policy insurance coverage options” for the entire project(s).
HOAs can now utilize “pooled policies” for affiliated projects, state-run plans, or “coinsurance coverage” obligations which should drastically cut insurance costs and make HOAs more economically stable.
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