If you’re in the market to make money through real estate, now is the perfect time to buy and then rent out a condo. The change comes in the face of new rules regarding condo-lending as stipulated by the Federal Housing Administration. Learn the details of these new changes and discover why buying a condo now could be the right decision for you, particularly if you plan to rent that condo down the line.
Why it’s the best time to buy a condo
The big news on the condo-purchasing front is this: the FHA is getting ready to relax the “pre-sold” guidelines on condo developments from 50% to 30%.
What does this mean?
Just this: Now you can buy in on a new-construction condo with very little down payment.
The changes coming for condo-buyers
Previously, the FHA had a host of restrictions when it came to condo-purchasing ventures.
Though the current FHA requirements on condo down-payments were only 3.5% on loans it backed itself, the Agency plans to raise the down payment level to an as yet unspecified rate.
This means higher down payments will be required, effectively knocking out all purchasing efforts from speculators or first-time buyers without equity.
The old challenges of buying in on half-completed units
Fortunately, before the requirement for higher down payments is set in stone, a few temporary changes have gone into effect. Because of these changes, it’s now easier for a mortgage lender to put out loans against condos in half-completed buildings (also known as new-construction).
Previously, new-construction condo loans have only been issued toward units in buildings where at least 50% of the building was pre-sold. This means that at least 50% of the loans on units in those buildings needed to have closed.
Even though these were the guidelines set by the FHA for its own lending standards, other mortgage lenders tended to follow the same pattern. They considered condo lending to be high-risk and so eliminated the typical buyer by requiring down payments of up to 30%.
This requirement made it terrifically hard for new buyers to get in on a building before half the building was already sold. It led to the catch-term of “zombie condos” – gorgeous new buildings with lavish living quarters that simply couldn’t get sold.
Relaxed FHA standards lead to easier buying options
In an effort to populate zombie condo buildings, the FHA will now relax its pre-sold guidelines from 50% to 30%. This is huge news for condo investors because it opens the floodgates for all sorts of new condo loans, including new FHA-backed mortgages.
The change in guidelines is a concentrated effort to fill the hordes of empty condos that surfaced after the real estate industry went bust a year ago.
Why this is important if you’re looking to rent the condo you buy
New-construction condos are much more appealing to condo renters than older buildings. Not only is the condo itself new and fresh, but generally the building, grounds, and surrounding amenities are of a higher quality than often found at older developments.
People looking to rent a condo are typically willing to pay for convenience and comfort. This means your chances of finding a prospective renter who’s willing to sign a lease increase significantly.
Because this news will likely spark a condo buying frenzy in popular metropolitan areas like Manhattan and Palm Beach, a condo-renting frenzy is almost guaranteed to follow.
Good news for entire condo communities
Some real estate agents are speculating that this will jump-start the markets of entire communities. In particular, it should help the places where property values have dropped significantly and where unsold inventory is high.
Keep in mind though – these changes expire in only one year (December of 2010). The hope is that the changes will spark enough deals to fill a sizeable chunk of available units.
