FHA financing for condominium projects is about to come to a complete standstill on October 1, 2009.  That’s when HUD and FHA will apply new federal guidelines as announced in the HUD Mortgagee Letter 2009-19.

But what does that mean?  Basically, you cannot get an FHA loan on a condominium after October 1 unless FHA approved the condominium project within the past year.  FHA approves condo projects for financing if they meet certain conditions (e.g., livable conditions, HOA solvency, low % of investors, high % of owner-occupied units).

October 1 is the big deadline.

All current condominium project approvals will be invalid on that date and all projects must be re-approved under the new options available.   Going forward, all projects will also require recertification every two years.

A one-time “spot approval” process for previously unapproved condominium projects is also eliminated.

Getting projects back on the approved list will be a long and slow process.  And until a project is approved, FHA financing is not an option.

If you want more nitty-gritty details, please download this two-page document that my colleague Leif Swanson put together.

So, what does this mean if you are selling a condo? Basically, if you want a chance to sell to FHA buyers, you need to sell right now, before October 1st.

So, what does this mean if you are buying a condo? You can still purchase before October 1st.  But you just need to be certain the condo you buy is currently approved by FHA or can qualify for a spot approval.  Does it have a high number of rentals?  Was it a condo conversion after about 2005?  Is it now renting out unsold units?

If so, you’ll need to get an offer accepted by late August.  If no, you’ll need to consider conventional financing.  Well, at least you have the $8,000 tax credit on your side!

Talk with your REALTOR® and mortgage broker about your options.