HUD Announces Condo Rules with Changes to Take Place October 15, 2019

Since we last wrote, HUD has finally announced that they are bringing back the single-unit approvals for condominiums!

HUD just announced that they will once again begin allowing unit owners to obtain FHA-insured loans on individual units in condo projects that have not gotten the entire project approved, under certain circumstances.

This is great news for borrowers who have been shut out of FHA-insured loans on both the forward and the reverse side for condominiums due to the projects not being approved, homeowner associations not desirous of being involved in the approval process and the approvals expiring and having to start all over again even if the exposure in the project was very minimal.

HUD just announced that beginning October 15, 2019 they will again have a single-unit approval available for condominium projects that are not approved and have not been denied.

HUD previously allowed this process, known as “spot approvals,” but then ceased the practice about 9 years ago when they began requiring the entire project to be approved before they would insure a single loan in the project.

The rule that HUD implemented at that time put an immediate halt to much of the FHA loan production on  condominiums for both forward and reverse mortgages when borrowers and homeowner’s associations simply did not desire to go through the strenuous process and time required to get a project approved.

Even then, the approval was only valid for 2 years before the approval expired and the whole process started again.  Under the new rules, you can still get an entire project approved and the approval will be valid for 3 years but new rule effective October 15, 2019, there will once again be provisions for individual unit owners that would not require the entire project to go through the full-blown approval process.

But just like before the spot-approval program was discontinued, there will still be some requirements the project will have to meet and documentation that the HOA will have to provide for the property to be eligible.

Eligibility Requirements 

However, it will be much less information to obtain and much easier to become eligible under the single-unit approval.

For example, the units will be eligible for single-unit approval if the individual condo unit is in a completed project that is not approved, no more than 10% of the individual units are FHA insured properties (if there are 10 or more units in the complex) or no more than 2 units are FHA-insured if the project contains fewer than 10 units.

To be eligible, the project must be at least 50% owner-occupied.  Projects must contain a minimum of 5 units.  The project may not be manufactured home condos.  HUD will still require Lenders to meet other requirements and you can find those here.

Under the new rules HUD just published, HUD will insure up to a maximum of 50% of an approved project.

So, if you need to go over the 10% of the maximum allowed by the single-unit restrictions, you can still do so up to 50% of the entire project with full approval.

Commercial / Mixed Use Condo

FHA will also allow projects that contain commercial or non-residential space in the project up to a maximum of 35% of the project’s total floor space under their new rules.

HUD stated that they will make an announcement to lenders sometime next week regarding the process by which lenders will request the Case Number assignments for any existing Case Numbers being switched to the new single-unit approval process as the new process is not available until October 15th.

This is important because we will need to know what will happen to loans in process under the old parameters and what HUD will require.  If they have a simple procedure to just transfer loans over to the new approval process, it would enable us to start taking loan applications prior to the October 15th start date and then transfer those old Case Numbers and close the loans under the new rules.

Otherwise, the new rules would be effective with Case Numbers issued after October 15, 2019 and we would not be able to start any loans in advance of that date knowing we were going to have to use the new condo rules.

Senior homeowners who own condos and have been waiting for the spot or single unit program to be released by HUD do not have much longer to wait.  You need to remember that does not mean that all units will automatically qualify, your project will still have to meet the HUD requirements.

Occupancy Requirements  & Sufficient Reserves 

If your project does not meet the HUD requirements due to non-owner occupancy ratios, no reserves in the budget, pending litigation, etc., this will not resolve those issues but if your inability to access the reverse mortgage program was simply because your project was not approved and your HOA was not willing to participate in the approval process, or there were other costs for project approval no one was willing to bear, now is an excellent time to check again as this might be just what you were waiting for.

We will be taking borrower names and contact information for borrowers who wish to get started and as soon as HUD makes their final announcement regarding Case Transfers, we will inform all who have inquired and be ready to serve these individuals.

If you would like us to contact you as well, please give us a call at (800) 565-1722 or request your ARLO Quote Here!