December 10, 2009 - We now have more news about the temporary requirement changes that FHA is implementing and that may have significant effects on Chicago real estate and sales of Chicago condos. The new rules will make it more difficult for developers to get their projects approved, and that in turn will make it more difficult for some first time homebuyers to get an FHA backed mortgage. With financing already tight, the timing of these changes could have a noticeable impact on sales.

According to an article in the Sun Times, these changes will supposedly help condo buyers get qualified, but the article also states that many believe it will make it harder in the long run for developers and even condo associations. Some of the changes are temporary and some are permanent. We’ll list them below.

The temporary FHA changes include lowering the pre-sale requirement to 30% from the old 50% of units. Another is that the 50% owner occupancy rule will now not include vacant or tenant occupied condos in the total. There will also be a temporary hike in the amount of FHA backed loans allowed in one building. Previously only 30% was allowed and now it will be raised to 50% with some buildings even qualifying for 100%.

Some of the permanent changes to FHA rules include only 10% of the condos may be owned by one person or investor and only up to 15% of the condos can be a month or more behind in association fees. Also, condo associations have to have a minimum of 10% of their budgets put back in a reserve fund. And lastly, according to the article, loans may be approved when condo associations have a right to reject a potential buyer as long as no discrimination is involved.

David Hanna, previous president of the Chicagoland Association of Realtors was quoted in the article as saying that, “What the government gives with one hand, it takes away with the other.”

But Joanne Kuczma of the FHA mortgage insurance department was also quoted as saying that, “We believe that we have a balanced policy that is flexible … yet will help us manage and mitigate the risk.”

Statistics indicate that with FHA backing about 25% of all new loans, around 18% of those are behind in payments or already in the foreclosure stage. Raising the 3.5% down payment to 5% may weed out some potential buyers, but hopefully FHA mortgages will still provide a viable source of financing for sales of Chicago Condos.

Technorati Tags: FHA Mortgages, Chicago Condos, Chicago Real Estate

This entry was posted on Thursday, December 10th, 2009 at 10:43 am and is filed under Market Update(t) , News(t) . You can leave a response.