The FHA was wise to delay the implementation of these changes. Now, buyers trying to close a transaction by Nov. 30 should be able to file their FHA loan applications early enough to qualify under the old regulations
Chicago, IL (PRWEB) September 28, 2009
The Federal Housing Administration (FHA) has delayed the implementation of rules that could make life more difficult for condo buyers in the metro Chicago real estate market and across the country. The delay should be especially helpful for those hoping to qualify for the first-time buyer tax credit that expires after Nov. 30.
According to Jim Merrion, regional director of the RE/MAX Northern Illinois real estate network, the new FHA rules, which were to take effect Oct. 1, will now be effective on Nov. 2. They are designed to improve the lending process, but they could cause some short-term delays in completing loans and closing purchases.
"The FHA was wise to delay the implementation of these changes. Now, buyers trying to close a transaction by Nov. 30 should be able to file their FHA loan applications early enough to qualify under the old regulations," said Merrion.
The importance of FHA financing has grown substantially in the last few years because conventional mortgage financing has become harder to obtain due to more stringent underwriting requirements. According to some estimates, 25 percent of homes purchased this year in the United States will use an FHA insured mortgage, up from 2 percent just three years ago. The number in the metro Chicago condo market could be even higher.
Through the first eight months of 2009, approximately 15,000 attached homes, primarily condominiums of various types, were sold in Chicagoland, according to Midwest Real Estate Data, LLC, the regional multiple listing service.
"About half the transactions I've closed this year involved FHA backed mortgages, and most of those folks were first-time buyers purchasing a condo," reported Lisa Campobosso, an agent at RE/MAX Vision 212 in Chicago. She explained that many first-time buyers are short on cash and turn to FHA financing because it allows them to put down as little as 3.5 percent, in contrast to the 10 percent down payment required for most conventional loans.
The new FHA regulations now will apply to all mortgage applications received on Nov. 2 or later. Files that were initiated prior to Nov. 2 will be processed under the old regulations, even if the loan does not close until after Nov. 2.
The prime reason the new regulations may slow down the purchasing process when they become effective is that they eliminate what are known as spot approvals of individual condominium units. Instead, the entire condominium property will need to be approved before an FHA-insured loan can be used.
Many condominium properties have never received FHA approval, according to Jane McClelland of RE/MAX in the Village, Realtors®, of Oak Park, Ill., who has extensive experience in marketing condominium projects, both new construction and conversions.
"In our area, developers of condo conversions rarely got FHA approval because for the first year of the project FHA financing was limited to the property's former rental tenants, and the project usually sold out in less than a year. Also, very few buyers in years past wanted FHA financing," said McClelland. "Now, of course, FHA financing is highly desirable, and we urge every developer and association to get their condominium property FHA approved."
However, even those condo complexes that now have FHA approval will need to be recertified after Nov. 2 if their approval was completed more than two years ago.
It may be possible to expedite that certification process by seeking a loan from an institution that is also an FHA Direct Endorsement Lender. That status allows a lender to directly carry out the certification process needed to grant FHA approval to a condominium complex.
The new FHA regulations taking effect Nov. 2 also contain other restrictions that could make life more complicated for condo buyers. Here is a partial list:
- At least 50 percent of units in the project must be owner occupied or under contract to owners who intend to occupy them. For new construction, the 50-percent-owner-occupied rule applies to those units closed or under contract.
- For new construction condominiums, at least 50 percent of the total number of units planned must be sold or under contract before an FHA insured mortgage can be closed.
- No more than 25 percent of the total floor area of a condo property can be used for commercial purposes.
- No more than 15 percent of the units can be more than 30 days past due on their assessment payments to the condominium association.
There is, however, some good news for borrowers in the new FHA regulations. For example, they eliminate the long-time prohibition against the FHA financing units in condominiums where the homeowners association retains a right of first refusal, Merrion reported.
Another change allows the FHA to insure loans in new condo conversions for any qualified buyer. Previously, only former rental tenants could get FHA financing for the first 12 months.
"The changes in FHA regulations are just one example of the current environment," said Mark Zipperer of RE/MAX Edge in Chicago. "It has seemed as if lending requirements have been changing on a daily basis this year."
He emphasizes that those looking for a condominium will benefit greatly by working with a Realtor® who knows the local condominium market.
"An agent with in-depth knowledge of the local market offers two important advantages to buyers right now," said Zipperer. "First, they are going to know which condo buildings offer the best opportunity to secure good financing, whether it's conventional or FHA. If you have a building where the association has financial problems or one with a high percentage of renters, it can be almost impossible to get a mortgage right now.
"Second, the agent will help buyers avoid the potential potholes that can come with condominium ownership. For example, before I even show a condo building now, I will study the minutes of the condo board meeting to learn what plans and problems might be on the horizon. An agent who doesn't normally work in an area just can't develop that kind of knowledge."
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