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So I understand that The FHA provides mortgage insurance on loans made by FHA-approved lenders.

I "assume" that this means that a lender is more likely to give you a loan because the FHA insurance will take care of it if the buyer defaults on the loan. Correct?

Apparently their are some rules which state something to the effect that the FHA won't insure a loan for a condo mortgage if more than a certain percentage of the units in that building are rented out (i.e. the owner's don't live there, they rent out the unit...).

I live in an 8 unit condo. 1 of the units is in a weird status where the owner left it to fall into foreclosure. There was some legal mumbo-jumbo that the HOA was able to actually take control of this property and rent it out so that we could recoup association payments that we lost from the owner (this was all done with a lawyer and is kosher). This isn't the main point of my question - I just want to note this 1 unit because although it is "rented" it also technically isn't owned by anyone (well, maybe the bank - but they apparently haven't finished with it yet, and haven't listed it).

Out of the remaining 7 units - only one is currently being rented. However two other units are looking to leave within the next 6-12 months. I am still not sure if these owners are planning to sell, or if they are planning to rent. I think they would prefer to sell - but the losses might be high.

If they were to rent - this means there would be 4 rented units out of the 8 (3 normal and the 1 special case I listed above) - or 50%.

I am reading around and see all sorts of different statements on what this owner-occupancy percentage needs to be in order for the FHA to back a loan.

If the number was say 60% owner-occupancy, it would seem to mean that if I tired to sell when only 50% of units were owner occupied I might have an exceptionally hard time because buyers will have an exceptionally hard time getting a loan - since they will be ineligible for any FHA approved loans.

So - my questions are:
1) Can someone tell me specifics about the owner-occupied ratios and how set in stone they are?
2) How important is an FHA loan - meaning if buyers aren't eligible for them - what other choices do they have?
3) How bad is this going to be for me if I want to sell?

To be honest I was hoping to be gone before winter of next year. Now that I know others are moving it is going to mean more competition trying to sell the place. I haven't even researched yet alternatives to where I would go (have some general ideas in the suburbs - but haven't really started to look yet).

So, I'm concerned about having to sell at an even higher loss due to multiple units being up, and also afterwards if the FHA issues are a major deal.

enlighten me.

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1) I think mine was 60% and my purchase nearly fell through because there were too many rented units. I'm not sure how my lender overcame this but I bought in 2006 so I'm sure they fudged the numbers.
2) A non-FHA loan. The buyer would have to put a down payment and basically provide financial evidence that they can afford to pay the loan.
3) My FHA loan was a pain in the ass. If I could do it over again, I would choose the non-FHA route. But as the seller, why do you care if it's an FHA loan or not? How the buyer comes up with money isn't your problem.

Many buyers want/have to use FHA financing. The market value suffers in many cases, by not having it. The entire complex must be certified to use FHA. This can be done preemptively, or it can be attempted when a sale is pending, often with the seller's real estate agent trying to help the association do it. The rules were loosened a little last fall, but it still is not the easiest process. For a small unit, there may be a race to get out, even if certified, where only a few can sell before it reaches the percentage limit of allowed FHA units.


Some information:

http://www.zillow.com/blog/2012-09-19/fha-condo-approval-rules-c...

http://therealdeal.com/blog/2012/09/21/fha-relaxes-condo-certifi...

I don't "think" we are currently FHA approved. I served on the HOA for a while and I don't recall us doing anything to this effect. I also don't believe my load was FHA (I put 20% down).

Are FHA loans usually for those that are lower income (or looking to move into lower income housing) and/or can't put 20% down?

I don't know if being non FHA affects the market value directly - but it certainly thins out the pool of possible buyers - especially if there are similar placed nearby which are FHA approved.

qcumber98 said:   1) I think mine was 60% and my purchase nearly fell through because there were too many rented units. I'm not sure how my lender overcame this but I bought in 2006 so I'm sure they fudged the numbers.
2) A non-FHA loan. The buyer would have to put a down payment and basically provide financial evidence that they can afford to pay the loan.
3) My FHA loan was a pain in the ass. If I could do it over again, I would choose the non-FHA route. But as the seller, why do you care if it's an FHA loan or not? How the buyer comes up with money isn't your problem.


On point 3, If buyers have a harder time getting a loan for your place than say another comparable place they are going to buy else where and at least theoretically driving down the sales price of your unit.

The look-up for certified complexes:
https://entp.hud.gov/idapp/html/condlook.cfm

Much of the market for condos in my area has been FHA, because many with 20% down will buy a house. It depends on how expensive your complex is, too. If more expensive, more people will do conventional, but some willing and able buyers will only want FHA. They are not only for low income. Also, they can be more lenient for people with bankruptcy or other financial problems in the past.

BenH said:   I don't "think" we are currently FHA approved. I served on the HOA for a while and I don't recall us doing anything to this effect. I also don't believe my load was FHA (I put 20% down).

Are FHA loans usually for those that are lower income (or looking to move into lower income housing) and/or can't put 20% down?

I don't know if being non FHA affects the market value directly - but it certainly thins out the pool of possible buyers - especially if there are similar placed nearby which are FHA approved.


CalHFA is for first-time homebuyers and the 20% down becomes a second mortgage. So I guess it depends on whether you think there are more HFA or non-HFA eligible buyers.

rooms222 said:   
Much of the market for condos in my area has been FHA, because many with 20% down will buy a house.


I think this statement is incredibly untrue - at least/especially in urban markets.

I paid 20% down, most of my neighbors in the building did too. You just can't find single family homes for anywhere near the same prices as a condo in most metropolitan cities.

Well, I am in the Metro Detroit market. In the suburb I live in, there are some FHA approved condo complexes (mostly new construction) that are going for $150,000 for 2 bedrooms (about $5000 down with FHA). The similar sized, but older non-FHA condos in the same zip code are going for $30,000 to $50,000, cash only (or people borrow from their 401k or family). The non-FHA condos now have the liquidity of a coop, and the last two in my complex, where I paid $79k back in 2008, went for $30,000 each in private sales where an appraisal was conducted, and it was bought within the family or by close friends. The one that was listed as a short sale had no interest because of its poor condition, and has been foreclosed upon, with no rush by the bank to list for sale.

Many of the non-FHA certified condos have either no rentals allowed or no more rentals allowed with a long waiting list. Small three bedroom houses in the same neighborhood are going for between 60k and 100k, and most people with 10 to 12 thousand to put down are buying those rather than the new condo (overpriced & FHA are the main buyers) or the cash only non-FHA, owner occupied only condo. The small houses had about a 10% price premium over a condo 5 years ago, now the premium is between 50% & 300%.

In my zip code, the small three bedroom houses dropped from the small premium to below the two bedroom condos during the start of the financial crisis (big supply of foreclosures of houses). Then FHA spot approval of condos was withdrawn. Now, houses are starting to accelerate above the non-FHA condos, but they are still within range of each other, and many pick the house over the condo, as they are close to each other in affordability, but people think the house is a better long-term choice.



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