When the real estate market takes a downswing, condominiums are often hit the hardest. Part of the reason for this is that, as condos go into default, it becomes more and more difficult for the overall project to qualify under the lender's guidelines. So even if the individual borrower is qualified, the loan is denied because the complex does not meet the underwriting rules.
HUD has responded to this problem by changing condo lending rules. Some of these changes will make it easier for condominium owners, or would-be owners, to get loans.
Perhaps the most important change is that HUD has relaxed the rule which defines what percentage of a project needs to be sold before FHA will insure the loan. In the past, 50% of a project had to be owned by someone other than the developer. This made it difficult for the developers of new condo projects to find loans for prospective buyers. This percentage has now been dropped to 30%.
HUD still requires that at least 50% of the units be owner-occupied. But they will no longer count vacant or tenant-occupied, bank-owned properties when calculating this percentage.
So if you have tried to get a condo loan, either for refinance or purchase, and were told your condo project did not qualify, try again. It just may be that, under these new guidelines, your loan will be approved.
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