Dallas FHA Condo Guideline Changes Creating Controversy

November 19, 2009 by · Leave a Comment 

Dallas Realtor

Dallas Realtor

FHA condo approvals might deter housing recovery and present additional roadblocks for first time and repeat buyers looking to purchase.  FHA recently proposed new guidelines that will elimate spot approvals and completely change the FHA condo approval system for lenders in Dallas.  Many feel these new requirements will deter potential buyers from purchasing and contribute to the housing crises.

FHA has revised its guidelines for condominium mortgages. The new guidelines will take effect with all case numbers assigned on and after December 7, 2009 (Note: the guidelines were initially scheduled to take effect on October 1, 2009 and then had been delayed again to November 2nd.)

FHA is implementing a new approval process for condominium projects, and with it, the elimination of the “spot approval” process.

With FHA loans becoming more prevalent, condo agents, buyers, sellers and their HOAs should keep these changes in mind. For instance, if an HOA has not yet conducted a reserve study, they will now need to do so if owners wish to sell to an FHA buyer.

Owner occupancy:
+ Now: 51% of the units must be owner occupied.
+ After the change: 50% must be owner occupied or sold to owners who intend to reside in the unit.

Single owner status:
+ Now: No single entity may own more than 10% of the units.
+ After the change: No more than 10% may be owned by one investor. This applies to builders that subsequently rent vacant and unsold units. This will not only affect the developer who intends to sell their unsold units, but also to existing unit owners in the project. For 2 or 3-unit buildings, no single entity may own more than one unit.
FHA Concentration:
+ Now: For projects over 30 units, no more than 10% may be insured by FHA; for projects with less than 30 units, no more than 20% may be insured by FHA.
+ After the change: For projects with 4 or more units, no more than 30% may be insured by FHA; for 2 or 3 unit projects, only one may be insured with FHA. The change increases the FHA concentration allowing for a greater number of FHA buyers/owners.
Reserve Study:
+ Now: No requirement. However, Washington State law requires homeowner associations to conduct reserve studies, though there is no enforcement provision.
+ After the change: FHA will require that a current reserve study must be performed to assure adequate funds, which must not be more than 12 months old.

Other changes include: No more than 15% of the total units may be in arrears of their HOA dues (30 days past due).


Commercial space: No more than 25% of the property’s total floor area in a project can be used for commercial purposes.

Conversions: The one year waiting period is eliminated, though the project, including common areas, must be 100% complete.

Endorsement: At least 50% of the units must be sold prior to endorsement of any mortgage on a unit.

Legal phasing: Allows the owner occupancy percentage to be based on release phases.

Recertification: Project approvals will expire two years from the date it was placed on the approved condo list and must be re-certified every two years.  As it is currently written, once the two years are up and condos need to be re-certified, as well as those projects hoping to be approved, may run into an issue with the environmental review section of the guidelines. The guidelines do not allow for projects to be within 1,000 of a highway/freeway, within 3,000 feet of a railroad and within 1 mile of an airport.

If you are interested in learning more about the FHA Condo Guideline Changes or Pre Qualifying For a Home in Dallas, please visit Dallas Home Mortgage Lending & Prequalification or contact one of our Dallas Real Estate Agents.

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