Why Orange County Condo Purchases May Require Higher Down Payments

FHA financing has been a popular financing choice for first time buyers of Orange County condos. While an FHA loan carries higher closing costs than other loans, they allow buyers to purchase with a down payment of as little as 3.5%.

However, new rules have been implemented disqualifying many Orange County condominium communities from FHA financing.

  1. No more than 25% of a property’s total floor area in a project can be used for commercial purposes (live/work condos and “urban living” communities with retail shops on the bottom floor may not qualify).
  2. No more than 10% of the units can be owned by one investor. This includes projects where builders rent unsold units.
  3. No more than 15% of the total units in the community can be 30+ days delinquent on HOA dues (communities with a lot of short sales and foreclosures often also have HOA dues in arrears)
  4. In new construction, 50% of a community’s units must be sold before endorsement of the mortgage.
  5. At least 50% of the units in a community must be owner occupied or sold to owners who intend to occupy.
  6. FHA will not insure more than 50% of any one condo project.

These changes mark a tightening of the FHA belt.  With some buyers no longer able to buy the home of their choice with FHA financing, buyers with larger down payments are at more of a premium.

-Brian Donlyuk

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