It wasn't all that long ago that Condo Buyers here in Chicago, and across the U.S., had many financing options available. As recently as a couple of years ago, buyers with marginal credit could put low - or, sometimes, no money down. Stated income and piggyback loans prevailed.
For those with less than the customary 20% down payment, financing using funds backed by FHA, with its myriad of rules for approval, was a less attractive option.
Today, however, condo buyers have far fewer options. Perhaps, no options if they have somewhat blemished credit, and little down payment. Other than FHA Financing.
FHA Loans require as little as 3.5% down. Many closing costs - including the roughly 1.9% Mortgage Insurance Premium - can be financed into the loan. Buyers purchasing single-family homes are subject to appraisals which often mandate basic repairs - serviceable roofs and mechanical systems, no peeling lead paint or broken windows. Usually, the seller of such detached homes makes these repairs prior to closing.
Condo buyers, however, often have the building in which they are purchasing very carefully scrutinized. The building has to be financially solvent. Have good reserves. No pending lawsuits or special assessments. And, under a long-standing rule, there can be no Right of First Approval by the Condo Association in order to get a building approved for FHA.
Under rules originally approved to take effect earlier this month, since moved to December, and again until next February 1st, the Right of First Refusal Requirement will be waived.
An old process of Spot Approving specific condo units in cases in which the entire complex does not have prior approval will be eliminated, in favor of a new system of complex-wide approval by FHA Authorized Direct Endorsement Lenders.
Changing the FHA rules too soon, administrators feared, might confuse an already struggling condo sale market.
It is hoped these two changes will streamline the process of obtaining an FHA loan - at this point, the only viable low-down-payment option.
But, as reported in last Friday's Chicago Tribune by Real Estate Columnist Mary Ellen Podmolik, other changes will make the FHA Borrower Approval Process a bit easier right away.
Under previous rules, no more than 10% of the units in complexes with more than 30 units could be encumbered by an FHA Mortgage. Effective immediately, that maximum concentration has increased to 50%, through the end of December, 2010. In certain cases, up to 100% of the units could have FHA Financing - although requirements for such approval are quite stringent - read the U. S. Department of Housing and Urban Development Mortgagee Letter 2009-46-A for specifics.
Each complex must be at least 50% owner-occupied for approval. A new refinement - incomplete buildings need show that only 50% of the pending sale units, or those sold prior to completion of construction, have been sold to owners planning to live in their new units.
Finally, under old FHA Rules, for a new condo construction or rehab project, 90% of the units in a complex had to be sold in order for the building to qualify for spot approval, and the association itself would have had to be turned over to management of the new condominium association for at least one year. That rule has now changed to 30%, although it will increase to 50% beginning January, 2011.
Here in Chicago, sales of Downtown Condominium Units are weak, and could use a bit of help that the FHA Approval Changes will provide. So far in 2009, only 424 units in the Chicago Loop and in nearby neighborhoods have gone under contract. That's just over half of the 845 units sold to this point last year.
Across IL, for single-family homes and condominiums, the maximum FHA Loan Amount will remain at its 2009 level of $417,000.
Normally, limits increase or decrease with changes in the median home price in a particular metro area. However, guidelines of the Federal Housing and Economic Recovery Act prevent the cap level from being reduced, despite considerable fall-off in home and condo prices here in Chicago and the Chicago Suburbs over the past year.
See our post today via BlogChicagoHomes.com.
DEAN & DEAN'S TEAM CHICAGO