[lindbergh]

To those of you RE buffs here (and I have been reading your posts intently), there are brand new federal FHA restrictions on condos. I'd like to get your opinion of developments in Vegas that could be in (more) trouble as a result of this. How many Vegas condos have commercial space attached? None that I know of - am I overreacting to these new guidelines? Talk me down off the ledge.


New FHA condominium guidelines: a chill in the air
October 13, 2009 02:21 PM

Welcome back to Attorney Richard D. Vetstein. Today, he explains the new FHA regulations and how they will put more obstacles in the path of would-be condo buyers.

Under revised guidelines set to go into effect November 2, 2009, the Federal Housing Administration (FHA) is implementing a new stricter approval process for condominiums to be eligible for FHA financing. Similar in some respects to the new Fannie Mae regulations issued earlier in the year, the FHA guidelines will surely slow down condominium mortgage financing, and negatively impact first time home buyers for condominium units.
For those who don’t know, FHA is a government program designed to help more people buy homes, and more borrowers will qualify with FHA financing than with conventional financing. It is a low down payment (3.5% down) program and the credit standards are much looser. The mortgage rates are typically better, as well.

New Project Eligibility Guidelines
All condominiums (consisting of 2 or more units) must meet the following requirements:
• At least 50% of the units of a project must be owner-occupied or sold.
• Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.
• No more than 15% of units can be in arrears of their condominium fees.
• No more than 25% of the property’s total floor area in a project can be used for commercial purposes.
• A current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance. The regulations don’t define what is “adequate” but guidance may be found in the new Fannie Mae guidelines which mandate at least 10% of annual operating budget in reserves.
• No more than 10% of the units may be owned by one investor.
• Rights of first refusal are permitted unless they violate discriminatory conduct under the Fair Housing Act.
• An affirmative action-type housing plan is required for both new construction and conversions.
• Previously certified projects must re-apply every 2 years.
• The “spot approval” process is eliminated in favor of a more comprehensive review process.

The net effect of these new guidelines, combined with the recent Fannie Mae guidelines, is that it will be much tougher to obtain condominium financing as many projects will not be able to pass muster. Condominium associations, trustees, managers, lenders and buyers need to prepare and do a lot more work to approve condominium loans.

New FHA condominium guidelines: a chill in the air - Boston Real Estate - Boston.com

[Daddys///M3]

These guidelines aren't new. FHA financing (and conventional financing for that matter) is going to be very difficult to get, unless it is HUD owned (or FNMA/FHLMC owned for Homepath/Homesteps). As a matter in fact, many lenders actually have (and have had for some time now) stricter guidelines than FHA on condos (first right of refusal being case in point) or in general for that matter. If one absolutely must purchase a condo with any type of institutional financing, I would suggest that one absolutely do their homework on the project before wasting any time on it to be sure that the project will meet guidelines (I believe that certain things like 10% reserves will be impossible to find out without the condo questionnaire though).

[lindbergh]

The new part is that as of Oct. 1, they prohibit any new FHA-backed loans on condo units in projects that include more than 25 percent commercial space. In addition, no single investor - including the developer - may own more than 10 percent of the units in a particular project. Seems to me, these bit pieces are new to the story?

[olecapt]

If the developer cannot own more than 10% that would imply no FHA until 90% sold. Does not sound right...or doable.

[lindbergh]

Experts: Plummeting prices have rendered condos nearly worthless

[olecapt]

Originally Posted by lindbergh

Experts: Plummeting prices have rendered condos nearly worthless

Interesting. LasVegas has about a two month supply of available condos. Condos continue to sell at record or near record levels.

[Daddys///M3]

Originally Posted by lindbergh

The new part is that as of Oct. 1, they prohibit any new FHA-backed loans on condo units in projects that include more than 25 percent commercial space. In addition, no single investor - including the developer - may own more than 10 percent of the units in a particular project. Seems to me, these bit pieces are new to the story?

Actually I was mistaken. I confused existing conventional condo guidelines with FHA guidelines. These are, in fact, new, and are almost a mirror image of the conventional guidelines which were put in place earlier this year/late last year.

A couple of things though. You mention that no single investor, including the developer, can own more than 10% but the guidelines you listed previously do not mention the developer other than 50% of the units have to be sold and owner occupied. Also, it looks like FHA is still going to issue condo certs although it is eliminating spot approvals. It sounds to me like there will still be a list, although how comprehensive remains to be seen, of FHA approved condos unlike FNMA/FHLMC which is all guesswork until the condo questionnaire is received.

[Hivemind31]

• At least 50% of the units of a project must be owner-occupied or sold.

Isn't this kind of a catch-22? No financing unless they sell, but how many of the units can they sell without financing? Anyway, I'm sure that most of you guys knew about this, but this little nugget of information is brand new to me (I'm "in the market" to be a first time homebuyer, and I was looking at condos first)...kind of discouraging.

[lindbergh]

Right - the owner occupied part plus the restrictions on commercial space is interesting. I ran this past my agent and he said this is what was enforced back in the 80's. However, how many people in Vegas are getting FHA for condos? Maybe not many.

[Daddys///M3]

Originally Posted by Hivemind31

• At least 50% of the units of a project must be owner-occupied or sold.

Isn't this kind of a catch-22? No financing unless they sell, but how many of the units can they sell without financing? Anyway, I'm sure that most of you guys knew about this, but this little nugget of information is brand new to me (I'm "in the market" to be a first time homebuyer, and I was looking at condos first)...kind of discouraging.

Total catch-22, but you have to understand that underwriting guidelines are reactive as opposed to proactive, and the crux of the matter is that the money is trying to limit it's exposure right now. It doesn't matter if the guidelines don't make sense to the money (and many of them don't), as long as they feel like they are covering their bums then they are comfortable.

That said, this could be a blessing in disguise for you. SFR is almost always going to have more potential (and less potential for issues with regard to common community stuff to be honest) for appreciation and resale (although at this point it would be the furthest thing from my mind if I was shopping) than a condo. Obviously I don't know your price point or purchase criteria (schools, location, shopping, dining, etc.), but there is plenty of SFR out there if you are willing to look and in many cases be realistic about what you are looking for in a home as it relates to your price point. It's not an easy task to get an accepted offer these days, but if you are tenacious I'm sure that you will find something that will work. Good luck!