FHA Extends Condo Rules for Reverse Mortgages, Other Loans – Reverse Mortgage Daily

August 31st, 2017  | 

by Alex Spanko  | 

FHA, HECM, News, Reverse Mortgage

The Federal Housing Administration this week extended its current rules regarding condominium lending as it continues to work on permanent updates.

In a new mortgagee letter, the FHA implemented an open-ended extension of the existing condominium rules as laid out in previous letters released in 2012 and 2015 — essentially freezing the status quo until FHA updates the Single Family Housing Police Handbook 4000.1 with a final rule for condos.

“This extension, without changes to existing temporary provisions, ensures that mortgagees, real estate professionals, and others may continue to work with borrowers seeking FHA-insured mortgages on condominium units in FHA-approved condominium projects,� the department said in an e-mail announcing the new letter.

The FHA requires that condo communities meet certain requirements in order for homebuyers to receive government-backed mortgages, including rules regarding insurance and the percentage of owner-occupied units.

Last fall, the agency relaxed the latter benchmark, allowing homebuyers to use FHA loans — including Home Equity Conversion Mortgages — to purchase condos in existing communities with 35% owner-occupancy, down from the previous 50% threshold. For new communities, that number sits at 30%. 

The FHA also rolled out a proposed rule last September that would empower the agency to approve single units in otherwise unapproved developments, and also provide an allowable range of owner occupancy — between 25% and 75% — instead of a hard-and-fast threshold. 

That proposal remains under consideration, the FHA said in its most recent mortgagee letter.

“HUD received comments to the rule and is currently evaluating those comments,� the letter reads. “This extension will allow continuance of condominium project approval until the condominium rulemaking process is completed.�

Read the full letter, 2017-13, on the FHA’s website.

Written by Alex Spanko

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