Bowing to pressure from buyers looking to take advantage of low down payments and flexible credit qualification requirements, the Federal Housing Administration has eased rules that previously made it difficult to purchase a condo unit with an FHA loan. The restrictive rules had resulted in only 20 percent of previously eligible condo communities open to FHA loans on units. FHA condo loan endorsements dropped to 22,800 in 2014, less than half of the 57,800 endorsements the previous year.
"The fact that the mortgagee letter is effective immediately tells me that FHA understands that there is a problem," said Brian Chappelle, a mortgage consultant and co-founder of Potomac Partners.
Condos can be notoriously hard to finance due to the "unit-by-unit" nature of selling, but also are, "often the most affordable option for homebuyers, especially first-time buyers," according to NAR President Chris Polychron. With the new rules in place, condo units that are second homes will be considered owner-occupied units and count toward the current 50% owner occupancy requirement, even if they are not the owner's principal residence. The FHA has also simplified the condo certification procedures, easing restrictions on condo association insurance.