The 2009 FHA Changes are Affecting Kansas City Condo Projects

In 2009, the Federal Housing Administration, or FHA, changed the loan approval guidelines for condominiums. The change made many of the condo complexes that once were FHA approved no longer qualify for eligibility — making it harder for Kansas City condo sellers to sell their condos because there are fewer buyers for their condos.

Part of the FHA changes for condos is that the condo is required to re-certify every two years. The series of revisions made in late 2009 were put in place to reduce the risk of losses from foreclosures or delinquencies.

The changes have prevented thousands of condo developments across Kansas City from reapplying for, or obtaining, certification.

Condo sellers and buyers all over Kansas City are extremely frustrated. 

It is ironic that the FHA condo program was first developed to stimulate the housing market during the Great Depression by insuring mortgages against borrower default. FHA-backed loans also allow buyers to make a downpayment as low as 3.5% on condos, unlike traditional conventional mortgage loans that may require a condo buyer to make a 20% down payment.

During the recent recession, FHA has moved to restrict risky mortgage loans due to higher defaults.

FHA Condo Restrictions
Some condo complexes have not sought to renew their eligibility due to lack of reserves required by FHA.

Others condos haven’t sought to reapply due to pending litigation, or because more than 15% of the condo owners are behind on their HOA dues. These are additional restrictions imposed by the FHA.

HUD, U.S. Department of Housing and Urban Development, the department that oversees FHA requires condos to have no more than 15% of the condo owners no more that 30 days past due with their condo association fees.

Other FHA changes require that not more than 10% of the condo units in a single complex may be owned by one investor.

Since the mid 1990's, FHA has allowed spot approvals on FHA mortgage loans allowing strong condo buyers to get their mortgage loans to get approved. The 2009 FHA changes has eliminated spot approvals.

Spot approvals allowed individual condominium condo buyers to obtain FHA-insured loans even though the entire development had not yet been approved. This worked great for new condo projects that are just getting started. The new FHA guidelines no longer allows spot approvals.

Another change in the 2009 FHA revisions is that no more than 30% of the condos in a single condo project can have FHA-insured mortgages. FHA made this change to limit their exposure to possible defaults on risky projects.

Since FHA was created to help home buyers, do the recent changes limit the number of condo buyers?

If two comparable condo complexes are across the the street from each other the FHA condo approved project will out sell and sell for more money than the condo project that is not FHA eligible.

Although many people think FHA loans are only for first-.time buyers, FHA mortgage loans are in fact for any borrower who wants meets the FHA borrower guidelines and want to put a minimum down payment. 

Homebuyers can find a list of  Kansas City approved FHA approved condos by going to https://entp.hud.gov/idapp/html/condlook.cfm and entering the zip code of the area they’re shopping in.

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Blog post written by the Dowell Taggart Team of RE/MAX Premier Realty 

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