FHA will now allow financing on new condo projects (defined as less than 1 year since the 1st unit has sold) to have as little as 30% of the current units sold and owner occupied! This is reduced from the previous requirement of 51%. Detailed information below.
Project Status Requirement
At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units Proposed, Under Construction or Existing < 12 months old FHA will allow a minimum owner-occupancy amount equal to 30 percent of declared units. One year after the first unit conveyance, the project requirement is at least 50 percent owner-occupancy of the declared units. The owner-occupancy percentage must be documented as follows: Copies of sales agreements and evidence (loan commitment) that a mortgagee is willing to make the loan*; or Evidence that units have closed and are occupied; or Information from a developer/builder that lists all of the units already sold, under contract, or closed (e.g. a spreadsheet, chart, or listing used for the company’s own tracking purposes) that is accompanied by a signed certification from the developer.
*NOTE: A secondary residence can only be considered to be “owner-occupied” if it meets the requirements of 24 CFR 203.18(f)(2). Additionally, units sold to owners who intend to occupy the units may only be considered “owner-occupant” it if was a valid presale.
FHA will not insure any mortgages in an approved project if 50 percent or more of the units are FHA-insured. FHA will not issue new case numbers once the 50 percent concentration level (plus a small tolerance to accommodate for some fall-out) has been reached in any particular development. The FHA concentration percentage will be based on new FHA case numbers assigned and active encumbered FHA-insured loans in a project divided by the number of declared units. FHA will display the concentration information for each approved condominium project on the approved condominium listing, which can be found on both FHAC and on the public website at https://entp.hud.gov/idapp/html/condlook.cfm.
For the purposes of calculating the FHA concentration: Projects consisting of three or fewer units must have no more than one unit encumbered with FHA insurance. Projects consisting of four or more units must have no more than 50 percent of the total units encumbered with FHA insurance. Calculation of the level of FHA concentration in a project declared with legal phases must follow the same methodology as owner-occupancy.
FHA Concentration Percentage Exceptions:
The jurisdictional HOC may grant an exception to allow insurance of mortgages in a project with an FHA concentration greater than 50 percent. No exception requests can be processed under the DELRAP option. To be granted an exception, the required documents and a cover letter must be submitted to the jurisdictional HOC for review and eligibility determination. The FHA concentration may be increased to 100 percent if the project meets all of the requirements for project approval and the following additional requirements.
The project has at least four (4) units. The project is 100 percent complete and construction has been completed for at least one year, as evidenced by issuance of the final or temporary/conditional certificate of occupancy for last unit conveyed; 100 percent of the units have been sold and no entity owns more than 10 percent of the units in the project (for projects with fewer than 10 units, single entity may own no more than 1 unit) – this requirement does not apply to eligible governmental or nonprofit programs (this means a program operated pursuant to a program established by Federal law, operated by a State or local government, or operated by an eligible nonprofit organization, if the program is designed to assist the purchase of low-or moderate-income housing including rental housing); The project’s budget provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; Control of the Homeowners Association has transferred to the owners; The owner-occupancy ratio is at least 50 percent. The exception terminates with the expiration of the current project approval.