On November 13th, 2015, the Federal Housing Administration (FHA) made temporary and immediate changes to its condominium rules to relax its owner occupancy and re–certification requirements for one year. The intention is to increase affordable housing options for first–time and low–to–moderate income buyers. The new guidelines streamline the agency’s re–certification process, expand eligible condominium project insurance coverage, and now allows for consideration of second homes in the owner–occupancy count.
For re–certification, the FHA will now only require applicants to submit any documents showing any substantive changes since the projects’ prior approval in order to make sure the project is still in compliance with FHA’s eligibility requirements and that no conditions currently exist that would pose an unacceptable risk to FHA.
For eligible condo project insurance coverage, the Homeowners’ Association (HOA) is required to maintain adequate "master" or "blanket" property insurance in an amount equal to 100% of current replacement cost of the condominium exclusive of land, foundation, excavation and other items normally excluded from coverage. Insurance coverage for condominium project approval that consists of pooled policies for affiliated projects, state–run plans, or contains coinsurance obligations on the part of the policy holder is permitted to satisfy this requirement; however, the unit owner is not permitted to satisfy the the requirement by obtaining gap coverage.
For calculating the required 50% owner occupancy percentage, a condo is considered owner occupied as long as they are not tenant occupied, vacant and listed for rent, vacant and listed for sale, and in contract to a buyer who is not intending to occupy the home as a primary or secondary residence.
For further details, and to read the full letter published by HUD, please see Mortgagee Letter 2015-27 at HUD.GOV.