Buying a condo? FHA loans are now easier

condo couple1One of the simplest ways to obtain a mortgage for a first-time homebuyer – or for anyone who might not have terrific credit and a big down payment – is a loan insured by the Federal Housing Administration.

The FHA doesn’t make loans, but it insures them for lenders. This makes lenders much more willing to offer a mortgage, because if the borrower defaults, the FHA will be on the hook.

FHA loans often require a down payment of as little as 3.5 percent, and can be obtained in many cases by people who have iffy credit or who have a bankruptcy or foreclosure in their past. (The catch is that borrowers have to pay mortgage insurance.)

The FHA insures loans for both single-family homes and condominiums. And it recently broadened its coverage of condos, so many more people will be able to get an FHA loan for a condo than in the past.

For instance, previously the FHA wouldn’t insure loans for any units in a condo if 15% of the unit owners were 30 days behind in their condo fee payments. This was a huge problem, because 30 days is a very short time. The new rule changes the 30-day period to 60 days.

Also, in the past, the FHA wouldn’t back loans in a condo if a single person or entity owned more than 10% of the units. That meant that if one person bought three units in a 29-unit complex as an investment, every unit in the complex would be ineligible for an FHA loan. It also meant that if a developer had trouble selling all the units in a new building right away, and kept slightly more than 10% for rental purposes, the whole complex would be disqualified. Now, though, the FHA says a single investor can own up to 50% of the units.

The agency will also be more willing to back condo loans in mixed residential and commercial buildings, and will relax the requirements for boards to certify information about the condo management.