Ann Arbor Real Estate: Buyers FHA Options in Michigan Need To Be Strengthened
Financing options for site condos are limited thanks to quirks in state and federal law that are preventing the use of Federal Housing Administration funding in unfinished housing developments that were subdivided as “site condos,” lenders, Realtors and builders say.
What is a site condo?
Site condos are single-family housing developments subdivided under the Michigan Condominium Act of 1978, allowing for a quicker division of land than the older Michigan Plat Act. Site condos are divided into “units” instead of separate lots, and each buyer owns a share of the project’s common areas.
FHA has become one of the most important sources of financing in recent months as buyers take advantage of relatively high loan-to-value ratios and low down-payment requirements.
However, occupancy requirements set by the FHA mean those benefits are not available in projects with land splits done under the Michigan Condominium Act.
In order to qualify for FHA loan guarantees, the development must be 90 percent sold and 51 percent owner-occupied. But that applies to total units, not just homes that have been built. So in a 100-unit project, 90 units must be built and occupied before FHA financing is available. Also the homeowners association has to have been in control for at least 12 months.
FHA loan limits were recently raised, which would allow them on many more subdivisions if not for the occupancy requirements. An example of a site condo in the area is include Peters Building’s Copper Meadows in Dexter Township.
One recent buyer in a Peters subdivision had to scramble after finding out FHA wasn’t available, said assistant Keller Williams broker Kathy Toth. Jennifer Marshall, a client care manager in Toth’s office, said the buyer used a different loan product that didn’t have terms that were as good. “If you don’t have the money to put down, if somebody can’t get FHA they may not qualify for another loan,” Marshall said.
Many buyers are not aware that the single-family home they’re interested in is actually classified as a condominium. What makes it particularly troublesome for Michigan is that it is the only state that uses the term ’site condo.’”
The Housing and Urban Development rule on FHA loans and condos dates back to 1996. HUD is considering changing its rules on site condos to accommodate the situation in Michigan, sources said.
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