Updated FHA Condo Loan Rules for Pre-Sale Requirements

October 30, 2012

The FHA has issued a mortgagee letter to update condo project approval rules. The new guidelines include changes in FHA pre-sale requirements for condo projects.

For those who don't know, FHA loan rules permit loans on condo units as long as the condo project as a whole is FHA approved. Condos that have not been FHA approved must become approved projects prior to FHA loan approval on an individual unit in that project. Part of the process for becoming an FHA-approved condo project? Meeting FHA guidelines on critical areas including pre-sale requirements.

FHA Mortgagee Letter 2012-18 states, "The requirements of Section 3.4 of the Guide are replaced by the following updated policy guidance:"

"At least 30 percent of the total units must be sold prior to endorsement of a mortgage on any unit. This pre-sale requirement is not applicable to existing projects or non-gut rehabilitation conversions, which require a 50 percent owner-occupancy percentage. The pre-sale percentage must be documented as follows:

Copies of sales agreements and evidence (loan commitment) that a mortgagee is willing to make the loan,

or

Evidence that units have closed and are occupied;

or

Information from a developer/builder that lists all of the units already sold, under contract, or closed (e.g. a spreadsheet, chart, or listing used for the company?s own tracking purposes) that is accompanied by a signed certification from the developer."

These new guidelines also include the addition of a rule that a secondary residence may only be viewed as owner-occupied, "if it meets all of the requirements of 24 CFR 203.18(f)(2). Additionally, a unit sold to an owner who intends to occupy the unit may only be considered "owner-occupied" if it was a valid presale."

FHA rules add, "A unit that is occupied as a principal residence is not considered as an investment property. Unoccupied and unsold units owned by a builder/developer are not considered as investor owned and subject to the requirements unless the unit is currently rented or has previously been occupied."

If you want to know more about these rule changes regarding FHA condo loan approval, review the entire text of Mortgagee Letter 2012-18 at FHA.gov.