New Law Makes Changes to FHA Condominium Approval Process

Unless a condominium association is certified by FHA, lenders may not offer borrowers FHA-insured mortgages.  In 2009, FHA implemented a number of changes to the agency's condominium approval requirements.  As a result, the number of FHA-approved condominium associations has plummeted.  In July 2016, President Obama signed into law H.R. 3700, the "Housing Opportunity through Modernization Act of 2016," which will allow more condominium associations to become FHA certified.  However, the real test is the pending release of FHA’s updated condominium regulations.


The Housing Opportunity through Modernization Act of 2016 requires FHA to issue new regulations according to the following:




  • Make recertification substantially less burdensome than original certifications.  The FHA must consider lengthening the time between certifications for approved properties and allowing information to be updated rather than resubmitted.

  • Provide additional flexibility for associations with commercial space.  FHA must make decisions regarding exemptions to the current commercial space requirements and must consider factors relating to the economy of the locality in which the property is located.

  • Cease and desist from rejecting condominiums that use transfer fees to fund association operations.

  • Decrease the required percentage of units that must be occupied by the owners as a principal residence or a secondary residence.


Beginning on July 29, 2016, FHA will have 90 days to issue its new regulations.  If FHA fails to issue regulations within this time frame, the owner occupancy requirement will automatically decrease from 50% to 35%.


FHA certification increases the pool of potential buyers for condominium units.  In the current lending environment, more than 50% of new home buyers plan on using FHA loan programs to finance their new home purchase.  With an increased pool of potential buyers, FHA approved associations may see higher competition for units that are for sale, and therefore, an increase in value of all the units in the association.  If an association does not have FHA approval in place, they risk losing a large pool of potential home buyers.


Please contact our office if you would like our assistance in the FHA application process.

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