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.
Then, earlier this month, the agency said that through next January it would relax some rules under which condo owners can qualify for the loans. (The F.H.A. still does not make loans on co-ops, and mortgage executives say they don’t expect that policy to change anytime soon.)
“This will absolutely be a big help for condo buyers,” said Melissa Cohn, the president of the Manhattan Mortgage Company. “The loans are still more costly for people, but it will at least allow them to gain entry into condos, and they can always refinance into more traditional, better-priced loans.”
F.H.A. loans have grown in popularity since the collapse of the mortgage market in 2007, because borrowers need not maintain stellar credit scores or save up for large down payments to qualify. Borrowers with credit scores as low as 600 can often qualify, and 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 $300,000 mortgage, that could add nearly $150 to the monthly payment.
Under the old F.H.A. rules, a borrower couldn’t qualify for a loan unless the condominium development had been approved by the housing administration, a process that could take months.
Ms. Cohn said many condominium associations in New York City declined even to try, because the agency barred “right of first refusal” clauses, which many associations include in their ownership agreements. Such language grants the association the right to buy a unit at the price listed by the unit’s owner. That restriction has now been dropped by the housing administration.
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.
Brian J. Chappelle, a partner with Potomac Partners, a mortgage industry consultant in Washington, says some lenders are uncomfortable with determining whether a condominium project meets F.H.A. eligibility requirements. “If they make a mistake, they’re responsible,” and could face F.H.A. sanctions, he said. “So I’m not sure how many will take advantage of this at the start.”
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.
And 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.
Richard L. Tracy Jr., the chief executive of Campbell Mortgage in West Haven, Conn., and an F.H.A.-approved lender, said the various changes could increase his loan volume by 10 percent or more. “F.H.A. realizes this is one thing they can do to keep the real estate market going,” he said.