FHA Requirements Continue to Hurt the Condo Market: Is Relief in Sight?
Mortgage lenders looking for a new opportunity should keep a close eye on the condo market. Currently, the Federal Housing Administration (FHA) restricts financing to this market, resulting in hampered growth. As pressure begins to build for the FHA to change its policies, the result could ignite a surge in the condo market.
FHA requirements restrict condo financing
FHA loans are a key source of financing for mortgages, especially for first-time buyers and buyers with moderate incomes. Though the FHA partially guarantees these loans while helping applicants qualify, the administration does not offer financing for most condominium complexes. For a complex to qualify for this type of financing, they must apply for special certification. This can be a lengthy process, and many applications are denied. As a result, less than seven percent of condominium developments are eligible for FHA loans.
Because of these strict requirements, it’s more difficult for first-time buyers to get a mortgage on a condo than it is on a standalone home. In addition, older condo owners also suffer because they can’t qualify for a reverse mortgage through the FHA.
The condo market remains strong
Despite these restrictions, the condo market is still strong. In the largest condo markets like Boston, Miami and San Diego, prices are growing faster for condos than stand-alone houses, boosting the total market share of condos from eight percent to 12 percent of the entire housing market. Even with recent price increases, condos are, on average, still less expensive than houses. They are also increasing in demand for younger buyers who prefer living in cities where condos are more common and practical.
Pressure on the FHA to make changes
Although the condo market is doing well, it could perform even better without the strict FHA requirements in place. As the real estate and mortgage industries lobby for changes in FHA policy, the government and the housing industry also recognize the need for additional pressure on the FHA. In October, President Obama stressed the importance of a strong housing recovery and the need for more financing options for the middle class; offering FHA loans to condo buyers could prove to be an ideal solution.
Great market to target for the future
Given the current situation, now seems like a great time for lenders to target the condo market. Despite the FHA requirements, growth is still decent. If these restrictions are lifted, which seems likely, the condo market will likely see a boom.
Lenders can get ahead of this wave by targeting their marketing campaigns to prospects that would most likely buy condos, including first-time buyers, minorities and moderate-income buyers. They can also reach out to older condo owners, informing them about their reverse mortgage options, especially if the FHA changes its policy. If and when the FHA loosens its requirements, lenders who have made these connections will have a new wave of clients ready to go.
While it’s impossible to predict exactly what’s going to happen with the FHA, there’s good reason to be optimistic about the condo market. Lenders who move in this market now are likely to profit in the future — especially as we are on the verge of change.
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