New FHA Rules for condos

By Hilary Reaves

Condo owners can rejoice, and buyers looking to purchase a condo using an FHA loan can finally explore a few more options in Downtown Raleigh or other area of the Triangle. The new rule allows for several things, but most important in my mind are:

• Spot Approval allowed - In Downtown Raleigh, only 2 buildings have historically had FHA approval. This means that if you wanted to buy a condo in a non-approved building, you needed spot approval. They used to do this, but stopped. Now it's back!  This also opens the market for condo owners looking to sell by including FHA buyers as possible prospects. 
• Owner Occupant limit raised - Previously, a building was limited to 50% rentals, or non-owner occupied. This limited sellers from selling to an investor in certain cases, and limited some buyers from buying in buildings where the limit had been reached (not only investors - most buyers like the flexibility of renting if they have an unexpected job change). Now condos with owner occupancy rates as low as 35% can possibly be approved.
• FYI - Raleigh's FHA limit is $339,250. See other limits here. 
• Look up FHA approved buildings here. 
• In the Downtown Raleigh area, the following buildings are FHA approved as of the time of this writing:
  • Palladium Plaza
  • WEST at North 

A quick review of 2018 condo sales in the core of Downtown Raleigh shows only 1 FHA financed sale at Palladium Plaza.  It will be interesting to see how this new rule impacts sales moving forward because almost half of the condos sold in Downtown were within the FHA range. 

Overall, this is a very positive move that should help condos become attractive options for buyers. The strict limits in the old days of 25-35% investors definitely hurt a few buildings downtown and we witnessed some serious damage to values as a result of sellers "giving away" their homes to cash buyers, who were usually investors, which only made the problem worse. The move to 50% helped back then, and this further expansion will open the door to more buyers. 

HUGE DISCLAIMER - financing is already pretty difficult to talk about b/c of how tied it is to your situation and every detail matters. Surely this rule has small print as well, so always check with your lender to see how this rule applies to your situation.