FHA Rules for Investors More Strict than Fannie Mae
The Federal Housing Administration has released its long-awaited rules on condominium loans. On one hand, the new rules allow lenders a lot of more flexibility, but on the other hand, the agency is imposing a number of important restrictions.
For beginners, FHA said it won’t insure units in condominiums where more than 25 percent of the total space is allotted to commercial uses, such as retail stores or offices. The agency also said it will reject loan applications from any property that it deems not “to be primarily residential” in character.
FHA also won’t insure condo loans if more than 10 % of the units are owned by investors. That’s much stricter than Fannie Mae’s standard, which allows up to 49 % of units to be investor owned.
In addition, the agency won’t endorse loans from projects where less than 50 % of the total units already have been sold, or where less than 50 % of the units are owner-occupied or sold to buyers “who intend to occupy them.”
To top it off, the FHA doesn’t even want to insure loans on units located in buildings with heavy concentrations of units that are FHA-financed. If more than 30 percent of the unit owners in a project took out FHA-backed loans, the agency doesn’t want to do any more business in that condominium.
Finally, FHA said it doesn’t want to have anything to do with condo projects that might be affected by negative environmental factors. For example, it won’t insure units in buildings located within a thousand feet of a major highway or within three thousand feet of a dump, landfill or EPA Superfund site.
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