Loans made through the Federal Housing Administration (FHA) program were subject to political wrangling, particularly as they apply to properties such as apartment buildings that have been converted into condos. In 2018, the National Association of Realtors (NAR) lobbied Congress to put pressure on the Secretary of Housing and Urban Development regarding FHA lending on condos. The NAR’s goal was to make FHA condo loans less restrictive at a time when home affordability was becoming difficult.
Only a few improvements have been seen in relation to the FHA condo lending process. With regard to condo units, the FHA approval list rule still stands, which means financing is only available for units in condo buildings that are on the FHA list. That would include:
Small Condo Buildings
Let’s say you’re the owner of a Boston historic building in Beacon Hill and you wish to convert it into Beacon Hill condos. If the structure is between two and four condos, unit owners would have to draft and execute a memorandum of understanding with the FHA for the purpose of stating each unit owner will take care of his or her own maintenance and repairs. Absent this document, which needs to be recorded at the county level, the FHA will not extend a condo certification.
Mixed Zoning Condo Projects
Mixed-use zoning is a trend that developers of condos in downtown Boston have embraced in recent years. The prospect of living in a Boston high rise condo tower where some floors, usually at the ground level, are filled with restaurants and shops can be very enticing, but FHA rules limit the amount of commercial space to 50 percent.
Ownership by Investors
It’s widely understood that FHA loans are for owner-occupied properties, but there’s an additional restriction that extends to other owners in a Beacon Hill condo building. If 50 percent of units are owned by investors for rental purposes, no further FHA lending can take place in that Beacon Hill building.
Condo Insurance Requirements
This restriction can be a bit tricky because it depends on the will of the Boston condo association to obtain certain coverage. The master policy must provide 100 percent coverage for the building structure, and this can be a challenge because of rising premiums in a market such as downtown/midtown condos, where condo appreciation has been very strong in recent years. For Boston Midtown condo towers with more than 20 units, FHA rules call for a fidelity bond to cover board directors and employees hired by the association to handle administrative duties. This bond must be estimated by taking into account the assessments of all units plus the association’s cash reserves.
FHA loans are a great option for many home buyers, but if you’re looking to buy a Boston condo for sale, make sure to do your research on the most current FHA regulations regarding condo loans. It’s also a shrewd move to work with realtors who have experience with the various financing options for Boston Midtown condos.
Please us help you find your dream condo in Boston Midtown, Beacon Hill Charles River Park or any Boston downtown area. My team can work alongside you through the home-buying process. Call one of our friendly agents today at 617-595-3712.