The Federal Housing Administration (FHA) has implemented new rules that change mortgage underwriting guidelines to make it much easier to buy a condominium.

Earlier this month, President Obama signed into law H.R. 3700, also known as the Housing Opportunity Through Modernization Act, that required housing officials to rewrite several rules for condo FHA eligibility.

Previously, the old underwriting conditions made the process so difficult that many condominium associations had pulled out of the eligibility program which made it almost impossible to use a FHA loan to purchase a condo.

The new rules will streamline the process for certifying FHA eligibility such as owner-occupancy ratio requirements will be reduced from 50% to 35%. Under the old guidelines, FHA used to disallow condo buildings that had more than half of the units occupied by renters.

Another change that will help buyers and condo associations is that FHA financing will now permit transfer fees and FHA will also simplify its re-certification process.

Here are the changes under H.R. 3700 in detail:


(Sec. 301) This title amends the National Housing Act to require the FHA to modify its certification requirements for condominium mortgage insurance to make recertifications substantially less burdensome than original certifications. The FHA must consider lengthening the time between certifications for approved properties and allowing information to be updated rather than resubmitted.

A HUD field office must make decisions regarding exemptions to current FHA commercial space requirements and must consider factors relating to the economy of the locality in which the project is located.

The FHA must apply to FHA condominium mortgage insurance the existing standards of the Federal Housing Finance Agency (FHFA) relating to encumbrances under private transfer fee covenants to the same extent and in the same manner as those standards apply to mortgage investments by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). If the FHFA changes its standards after enactment of this bill, the FHA must adopt the changes or disregard them with an explanatory notice within 90 days.

The FHA must issue guidance regarding the percentage of units that must be occupied by the owners (or sold to owners intending to meet such occupancy requirements) in order for a condominium to be eligible for FHA mortgage insurance.

If the guidance is not issued within 90 days of enactment of this bill: (1) at least 35% of all family units must be occupied by the owners or sold to owners who intend to meet the occupancy requirement, and (2) the FHA may increase the requirement for a project on a project-by-project or regional basis after considering factors relating to the economy of the locality in which the project is located.

FHA Links:

HUD mortgagee letter 2016-13(link is external)

HR 3700(link is external)

White House Press Statement on HR 3700

Erik Sandstrom
LoanSafe's Mortgage Expert
I'm a Senior Loan Officer and LoanSafe mortgage expert. If you need a live rate quote, or need help getting a new mortgage, please call me direct anytime at 619-379-8999.