Buyers are about to have an easier time scoring a mortgage to purchase a condo.
A new policy announced this week should significantly expand the number of individual condo units as well as condo developments eligible for Federal Housing Administration financing.
The government-backed mortgages are popular with first-time buyers because they require as little as 3.5% as a down payment, in many cases. But the vast majority of condos have not been eligible for FHA financing, which has been heavily restricted in the wake of the housing crisis that began in 2006.
The new rules, which are expected to extend eligibility to 20,000 to 60,000 additional condo units, go into effect on Oct. 15. Condos tend to be popular with first-time buyers and retirees looking to downsize from single-family homes and their maintenance, as well as folks living in urban areas with limited space. They also tend to be cheaper than single-family homes.
Nationally, condos and co-ops cost a median $260,100 in June—11% less than the median $288,900 price for single-family residences, according to the most recent National Association of Realtors® data available. The data included only existing homes and not new construction, which tends to cost more.
“Condominiums have increasingly become a source of affordable, sustainable homeownership for many families,” U.S. Housing and Urban Development Secretary Ben Carson said in a statement. “Today, we take an important step to open more doors to homeownership for younger, first-time American buyers as well as seniors hoping to age in place.”
Despite the significance of condos to a large portion of buyers, after the housing bust it was seen as riskier to make loans for purchases of condos than for single-family homes. So in 2009, tough restrictions were put in place.
Under the revised rules, buyers who bought a condo that didn’t receive FHA approval will now be able to get FHA mortgage insurance. Currently, only about 6.5% of the nation’s roughly 150,000 condo projects are approved for the insurance program.
The new rules will “put the American dream within reach for thousands of additional families,” NAR President John Smaby, also an Edina, MN–based real estate broker, said in a statement. “It goes without saying that condominiums are often the most affordable option for first-time home buyers, small families, and those in urban areas.”