September 14th, 2009
FHA Time bomb is ticking...
What do you envision when you hear the word "condominium"? A highrise in
Downtown Minneapolis with underground parking? An older apartment building
in Uptown converted to condos? How about a new construction townhouse in the
17083 72nd Avenue N , Maple Grove, MN 55311 is in the K. Hovnanian Homes
Timbres of Elm Creek development. It looks like a townhome, a two story row
house building with 6 units. It feels like a townhome with a private entry
two car garages. And its listed as a "Townhome Side by Side" on the MLS.
Only the legal description tells you this is a condominium. The typical
reason to condo a townhome development is that you only need one sewer and
water hookup for the building, thus saving both on the infrastructure costs
and the building permit fees. Sounded like a good idea at the time. Until
the FHA Concentration Time Bomb started ticking in June of 2009. FHA insured
mortgages for condominiums will be limited as follows :
1.. Projects consisting of three or less units will have no more than one
unit encumbered with FHA insurance.
2.. Projects consisting of four or more units will have no more than 30
percent of the total units encumbered with FHA insurance."
Thanks to Randi Livon of RMG Mortgage for the update on the delay of this
time bomb: "HUD's new condo guidelines that were to go into effective for
all case numbers assigned on or after October 1, 2009 have been delayed to
all case numbers assigned on or after November 2, 2009"
Why do we care about this? Because the down payment requirements for
condominium mortgages is 3.5% down for FHA and 10% down for Conventional. If
this" looks like a townhouse" really was townhouse and not a condominium--
the down payment requirements for conventional would be 5% instead of 10%.
So far for the Twin Cities in 2009, according to the MLS, 169 of 461
townhomes built 2008+ and sold in 2009 to date, or 37%., were financed with
FHA loans. The price range is $109,000 to $320,000 with the average
$175,000. Typically, buyers of the entry level homes may not have the 10%
down payment if the unit is a legal condominium.
To look at some specific communities for townhome sales to date in 2009,
existing and new construction:
* Maple Grove 98 of 229 sales or 43% were FHA.
* Woodbury of 105 of 244 sales or 43% were FHA
* Hugo 54 of 91 or 59% were FHA
FHA percentages may be under reported on the MLS as all agents don't
properly complete the sold data.
Another advantage of FHA besides the lower down payment is that FHA is NOT
implementing the new HVCC appraisal code. However, banks issuing FHA
mortgages can still choose to implement the HVCC appraisal code-especially
if they own appraisal management companies and have a profit motive to use
A follow up to the problems experienced with the HVCC. At the request of the
National Association of Realtors, Congresswoman Michele Bachmann has
co-sponsored a bill to impose an 18 month moratorium on implementing the
HVCC. Please contract your US Congressperson and Senators to urge their
support of this moratorium.