New FHA Guidelines- New stricter FHA guidelines put a real crimp in the number of condominium purchases.

FHA mortgage insurance allows buyers to purchase condominiums with little money down, thereby enhancing demand. However, the new stricter FHA guidelines severely limit the number of condominiums that wish to qualify for FHA insurance. Moreover, Fannie Mae and Freddie Mac, the nation’s largest mortgage purchasers, have adopted the FHA’s stricter guidelines, making less money available to finance condominiums.

Here is why new FHA certification is problematic

  1. Condominium executive board members are loathe to sign the FHA certification due to severe penalties for incorrect information which include $1 million in fines and  30 years in prison. Therefore, many condominium association boards stay away from FHA certification.
  2. New stricter FHA guidelines do not allow initiation payments by buyers upon sale. These initiation payments provide a boost to reserve funds in a time when interest income is hard to come by. Executive board members do not want to give this money up, so they do not apply for FHA certification.
  3. New FHA guidelines require much more fidelity insurance, thereby increasing association expenses at a time when revenue increases are difficult to pull off. Executive board members do not want this expense pressure and, therefore, do not pursue FHA certification.

As of the date of this writing, less than 10% of the 25,000 community associations nationwide have received FHA certification. Organizations such as the Community Association Institute continue to negotiate less strict guidelines. Hopefully, they will be successful.

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