The Federal Housing Administration issued a final rule that would allow certain condominium units to be eligible for FHA mortgage insurance even if the condominium project is not FHA-approved.
The regulator said it will allow more mixed-used projects to be eligible for insurance, extend the recertification requirement for approved condominium projects to three years from two years and introduce a new single-unit approval process to make it easier for individual condominium units to be eligible for FHA-insured financing. To be eligible, the FHA said approved condominium projects should have a minimum 50% occupancy rate by owners for most projects and that the commercial/nonresidential space within an approved project should not exceed 35% of the total floor area. The FHA said it will only insure up to 50% of the units in an approved condominium project.
An individual unit may be eligible for insurance under the single-unit approval process if it is located in a completed projected that has not been approved, according to the FHA. Condominiums with 10 or more units will only have up to 10% of units that can be insured, while those with less than 10 units can have up to two FHA-insured units.
The FHA said while there are more than 150,000 condominium projects in the U.S., only 6.5% are approved to participate in the regulator's mortgage insurance programs. The rule will increase the number of condominium units eligible for FHA-insured financing by 20,000 to 60,000. It is also estimated that the regulation change could result in an overall quantified cost savings of about $900,000 annually, considering the costs of requiring project approvals.