New HUD condo rules may benefit Alabama markets
Sellers and potential buyers in the Tuscaloosa condo market could benefit from new, more relaxed rules on condo financing announced by the U.S. Department of Housing and Urban Development. (Clint Lewis/ACRE)
Fallout from the housing crash of 2008 can still be felt throughout the housing market today.
One area in particular is the condominium market, where lending over the past eight years has become more strict for individual units.
Last week, the U.S. Department of Housing and Urban Development issued a statement that should loosen some of those tighter standards and perhaps provide FHA financing for some condominium purchases.
The key component of the statement issued by HUD focuses on developments that have an owner-occupancy rate as low as 35 percent, a report from the National Association of Realtors said after the decision.
To read the full Mortgage Letter from HUD, click here.
NAR lobbied for the passage of “The Housing Opportunity Through Modernization Act (H.R. 3700), which was passed during the summer. The law set the 35 percent ratio unless HUD dictated otherwise before Oct. 28.
“NAR has been fighting for changes to FHA’s condominium rules for years, and the mortgagee letter announced will bring some much-needed relief to the market,” NAR President Tom Salomone said in a statement. “Condominiums will have a much easier time getting certified by FHA, and Realtors will have more options for clients looking to purchase a condo with an FHA mortgage. This is a big win for NAR, and while we believe all condominiums should have the rules applied to them equally, we believe FHA has heard the concerns of Realtors and is moving in the right direction.”
Tuscaloosa stands to benefit
While FHA has set the standard for 50 percent of the units to be owner-occupied in a given project, NAR said it will lower the requirement to 35 percent under the following conditions:
- The project has replacement reserves of at least 20 percent of the budget.
- No more than 10 percent of the units are more than 60 days past due.
- The condo has three years of acceptable financial documents.
“HUD believes that it would be possible to protect the fund while allowing a lower owner-occupancy percentage if certain adjustments are made to enhance other requirements that affect the financial stability of the project,” the agency said.
The condominium market has long been a staple of the Alabama Gulf Coast, but this rule could also bring welcome news to areas like Tuscaloosa, where the condo market has seen a boost from continued increases in enrollment at the University of Alabama and people looking for units near Bryant-Denny Stadium.
Dramatic potential
Brock Tate, a mortgage lender with Trustmark Bank in Tuscaloosa, said the October HUD letter represents another step in relaxing some of the barriers to condo financing that rose during the recession.
“The HUD letter has a potential to make a dramatic impact on condo sales within Tuscaloosa,” Tate said.
Tate did point out that not all condo projects qualify for FHA financing.
“The mortgagee letter which HUD sent would only be applicable to those condos which are FHA-approved,” Tate said. “To be eligible, the associations would need to submit for FHA Condo Approval. Once the condo is approved, the lender may act on the new updated guidelines and offer FHA Condominium Financing to consumers.”
John Randall, a Realtor with The Gray Group at Keller Williams Tuscaloosa, said even before the HUD letter on FHA financing, lenders in the town had been seeking more creative ways to provide financing for non-cash condo deals.This is mostly due to a rise in demand for condos.
Randall and The Gray Group’s Jason Gray said enrollment at Alabama has led to an increased demand in condos from out-of-town investors, including many parents of students coming to the school. Randall and Gray said they have sold to parents from Chicago, New Jersey, Dallas, San Diego and other major metros around the country.
“When you can buy a condo that has the amenity package of what parents look for when their son or daughter is three states away, they have the gated community and clubhouse where they have that security, it fits into what they’re looking for,” Randall said.
Creating opportunities for buyers
Randall said many of these buyers are cash purchasers, but there has been an increase in demand from buyers who are seeking financing.
Financing a condo purchase got more difficult during the economic downturn, but restrictions are loosening somewhat. (Clint Lewis/ACRE)
“The lenders, over the past year, have become a lot more creative in helping buyers who are not cash buyers find ways to purchase a condo,” Randall said.
Tate said because of the housing adjustment several years ago, mortgage lending as a whole has become more carefully reviewed.
“During the downturn, financing availability for buyers looking to purchase condos became more difficult,” Tate said. “Many of the agencies wanted to push out of that business a little bit. However, we have seen some of the lending parameters easing, which has created opportunities for condo buyers, even before HUD’s October release.”
Tate stressed that the agencies never left the condo market, but with the updated condo guidelines it became more difficult, in some cases, for consumers to attain a mortgage loan secured by a condo.
Tate said the key has been creating a mechanism that allows the debt to be sold on a secondary market.
“With a movement back toward creating lending opportunities for those seeking condominium financing, it is safe to say there are now lending options available to condo buyers,” Tate said. “In some situations, a consumer might not even need 20 percent to put down to acquire a condo. Because of the lending availability, consumers have become more interested in purchasing condos, which is a great opportunity for the Tuscaloosa market.”
Sales increasing
From January to September 2015, 109 condos were sold in Tuscaloosa, according to data from the Alabama Center for Real Estate. During the same period in 2016, 138 condos were sold, an increase of 5 percent.
Of the 22 condos sold in July, the average unit stayed on the market for 86 days, compared to 130 days a year earlier.
Condo sales from January to September also rose in Baldwin County, according to ACRE, compared to the same period during 2015. There were 1,214 condo units sold in the county during the period in 2015 compared to 1,224 during 2016.
