Loosening FHA Restrictions on Condominium Financing Makes Sense

Brief

Loosening FHA Restrictions on Condominium Financing Makes Sense

November 17, 2016

Abstract

Many have complained that the Federal Housing Administration (FHA) places overly tight restrictions on the conditions under which condominium units are eligible for FHA loans, making it difficult for homebuyers to obtain financing for these units. This paper examines the data to determine if FHA can afford to be more flexible in insuring condominiums without increasing risk to the insurance fund. We show condos have lower default rates than single-family purchases and condo purchasers are more heavily weighted toward first-time homebuyers and women than the FHA purchase population at large. These data should convince the FHA that allowing a lower owner-occupied threshold for existing condos makes sense.

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