NEW FHA OWNER OCCUPANCY REQUIREMENTS COULD BENEFIT SOME CONDOMINIUM COMMUNITIES

A few months ago we informed you that both houses of Congress voted unanimously to pass the Housing Opportunity Through Modernization Act (HOTMA) which, in part, required FHA to lower the required percentage of owner occupied units in condominiums from 50% to 35% unless FHA could prove that a higher percentage of owner occupancy was justified. 

FHA continues to maintain the position that condominium projects where at least 50% of the units are occupied by owners as their primary residence or as a second home are more financially stable and have a history of fewer defaulted loans. In response to the legislation, however, FHA has issued new regulations which will allow consideration of requests by associations to have owner occupancy percentage set at 35% for condominium associations that can prove they are financially strong. 

The chart below lists the requirements that condominium projects must meet in order for FHA to consider lowering the owner occupancy requirements to 35%. We have also listed the current requirements for projects that have at least 50% owner occupancy for ease of comparison.

Minimum of 35% Owner Occupancy

Minimum of 50% Owner Occupancy

At least 20% of the budget must be set aside for replacement reserves. There are no provisions for submitting a Reserve Study in lieu of 20% reserves.

At least 10% of the budget must be set aside for replacement reserves OR a Reserve Study performed in the last 2 years that shows lower required reserves.

No more than 10% of the units can be more than 60 days past due in the payment of assessments.

No more than 15% of the units can be more than 60 days past due in the payment of assessments.

Three (3) prior years of acceptable financial documents must be submitted.

One (1) prior year of acceptable financial documents must be submitted.

FHA has not yet issued any other changes or new regulations as a result of this legislation. Perhaps the one most anticipated (and the one we get the most inquiries about) is that FHA will extend the requirement for recertification from two years to three years but, as of this date, that has not yet occurred.

We have been handling applications for FHA project approval for several years and will be glad to assist you with a new application for project approval or a recertification request prior to expiration of your 2 year approval.