More Flexibility for Manhattan Condo Buyers


Mortgage Rates Coop

Condominium buyers in the New York area often paid little mind to Federal Housing Administration mortgages, either because these government-backed loans had relatively low dollar limits or because federal rules put them beyond the reach of most condo associations.

But last year, the federal government raised the maximum F.H.A. loan amount to $729,750 from $362,790 for high-cost areas like Manhattan and northern New Jersey. It recently extended that ceiling through 2010. F.H.A.’s new rules will open an important lending option to condo buyers, especially those with weak credit.

  • Although interest rates may be higher, borrowers with credit scores as low as 600 can often qualify.
  • They can secure a mortgage with a down payment of less than 5 percent. The downside, though, is that borrowers must pay an F.H.A. insurance premium, similar to private mortgage insurance. On a $729,750 mortgage, the maximum conforming mortgage in New York City, with a high LTV (say if you put down 5% on a $768K condo), that could add over $450 to the monthly payment.
  • Most condos include in their ownership agreements the “right of first refusal.” Such language grants the condo association the right to buy a unit at the price listed by the unit’s owner. In the pastt FHA had barred such clauses but now that restriction has now been dropped.
  • The government has also streamlined the process for lenders that want to qualify a condominium for the F.H.A. program. Lenders can now approve condos without applying to the government, if they believe the condominium complies with F.H.A. lending policies. The F.H.A. will permit these “spot approvals” until Jan. 31, 2010, but lenders say they are hopeful the government will extend the policy beyond that date.
  • The government also relaxed rules that had limited the number of condominiums that would qualify for F.H.A. loans. Under the old rules, if more than 50 percent of a new development was unsold, the F.H.A. would deny a loan. Now, just 30 percent of a development must be sold before an F.H.A. borrower can qualify.
  • In addition, the old rules capped, at 30 percent, the share of condos that could have F.H.A. loans in a given development. Now the figure is 50 percent.

Graph and above points excerpted from November 20, 2009 NY Times article by Bob Tedeschi

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