What a windfall! Starting Oct. 15, individual borrowers will be able to get Federal Housing Administration-insured mortgages for condos in complexes lacking FHA certification.

Currently, the entire complex needs FHA approval before anyone in the development can get an FHA-backed loan, a policy that caused FHA condo loans to plummet over the past eight years.

Why is this such a big deal?

This means much more access to typically lower-priced starter residences.

This plan, initially approved by Congress and signed into law three years ago, largely broadens the properties-to-purchase menu for homebuyers who qualify for higher-priced properties under FHA rules than they could using conventional lending standards.

Today, only 6.5% of America’s 150,000 condominium projects is FHA approved. Going forward, the FHA will approve loans case-by-case based on a limited review of a homeowner’s association financial condition.

Approvals will be limited to 10% of a complex’s units, or up to two units in projects with five to 10 units

This offers the opportunity to “lay down roots and build wealth,” said U.S. Housing and Urban Development Secretary Ben Carson.

Because of their lower down payment requirements, lower costs and reduced credit score requirements, FHA loans are popular with first-time buyers and minorities. Since the FHA backs most reverse mortgages, the new rules also will open up those loans to seniors in unapproved condo complexes.

Minority homeownership lags the market by 20%, said FHA Commissioner Brian Montgomery.

For example, FHA’s minimum down payment is 3.5% when the borrowers’ lowest middle FICO credit score is 580 or higher. Conventional lending largely requires 5% down and a minimum credit score of 620.

The FHA cap in San Bernardino and Riverside counties is $431,250, compared with $484,350 for conventional loans. (Los Angeles and Orange County loan caps are the same — $726,525 — for both FHA and conventional financing.)

The median price of a California condo was $141,000 less than the price of a single-family home last month ($470,000 vs. $610,720), according to July figures from the California Association of Realtors.

“This gives some folks a shot to get into those more affordable condos,” said Jordan Levine, CAR’s deputy chief economist. “This could boost home sales.”

The new rules will allow condo owners to refinance conventional mortgages into FHA-backed loans and use FHA financing for second homes needed to avoid undue hardship (although not for vacation homes), said HUD spokesman Brian Sullivan. Mixed-use projects that contain some commercial space will also be eligible.

Investor financing and condominium projects that have significant issues affecting project viability will not be allowed.

“Our goal is not to throw the barn door open,” said Montgomery.

Rate news summary

From Freddie Mac’s weekly survey: The 30-year fixed rate averaged 3.60%, unchanged from last week and the lowest level since November 2016. The 15-year fixed rate averaged 3.07%, up 2 basis points from last week.

The Mortgage Bankers Association reported an earth-shattering 21.7% increase in loan application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $484,350 loan, last year’s payment was $261 higher than this week’s payment of $2,202.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 15-year FHA (up to $431,250 in the Inland Empire, up to $484,350 in Los Angeles and Orange counties) at 3.0%, a 30-year FHA at 3.25%, a 15-year conventional at 3.125%, a 30-year conventional at 3.5%, a 30-year FHA high-balance ($484,351 to $726,525 in L.A. and Orange counties) at 3.375%, a 15-year conventional high-balance (also $484,351 to $726,525) at 3.375%, a 30-year conventional high-balance at 3.75%, a 15-year jumbo (over $726,525) at 4.0% and a 30-year jumbo at 4.5%.

Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.


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