Miami’s vertical homebuilders are slowly waking up to the reality that the Government backed mortgage loan will be the only way to sell off bloated inventories of condos. The FHA mortgage is the clear choice of new home buyers and represents the only legitimate option for vertical homebuilders to reduce their inventories organically through sales to end users. One of the primary reasons that new homes are disproportionately represented in the FHA insurance pool is the low down payment feature. The Florida market for condominium and attached housing is currently under the interdict of all private Mortgage Insurance companies. Market share statistics show a new perspective on the rate of growth in FHA lending and it’s necessity for home builders. The FHA Condo approval process has high standards and involves a thorough and arcane review of all aspects of the communities’ legal documents, fiscal practices and on-site inspections.
The highly successful Government insured FHA mortgage program was introduced in 1934 (click here for the complete history) and created the 30 year fixed mortgage. Private lenders issue loans endorsed by the FHA to participate in their national Mortgage Insurance Program (MIP). The loans themselves are made with private money, and the insurance policy is equal to 50% of the face value of the loan.
The FHA loan is crucial for first time home buyers, who can qualify for the monthly payments, but have anywhere from 3-10% to put down on their purchases. A 3-5% down payment is typically near or equivalent to 3 months rent in a normal market, which would be a first, last and security deposit.
Banks require Mortgage Insurance to make loans for greater than 80% of the value of the mortgaged property. (Note: PMI Group is only one of the companies, other providers are UIG, MGIC, Radian, RMIC and Genworth). Without this crucial insurance, banks cannot hedge their risks effectively and resist giving out the loans first time homebuyers need to purchase real estate.
The requirements for a buyer obtain mortgage insurance in Florida, on a single family home, buyers must have 10% down payment and a 720 or higher middle fico score. The FHA does not have a minimum score requirement (though lenders typically want borrowers with scores above 620) and will issue loans with as little as 3.5% down payment. Since 1980, the FHA’s Mortgage Insurance Program has insured up to 58% of all insured loans in the marketplace and at the rate we are going, may top that figure Very Shortly.
Across America, people are searching high and low for financing, nowhere more so than in the South Florida new construction condominium market. Mortgage lenders across the state are rummaging through the back corners of their closets and pulling out dusty pet rocks, disco boots and HUD’s ubiquitous handbooks for FHA lending.
The FHA’s mortgage market share of all loans originated in 2007 was just over 4% and slightly less than 6% of all new homes. Per current figures on HUD.gov, the FHA loan program now has a share of 16.6% of the total market and a whopping 22.78% of new construction! FHA’s share of mortgage loan origination volume has jumped more than 400% in only 2 years!
The FHA process itself is arcane and poorly documented. My firm does assist developers and communities in applying for certification through FHA Condo approval process. By our most recent count, there are 26 steps in the process just to assemble an application for HUD, if the condo has absolutely everything in perfect order.
Typically, there’s a lead time of 30-90 days of preparatory time to amend budgets, condo docs, ensure full compliance with state law and governance issues. The approval process takes anywhere from 30-90 days depending on HUD’s review volume and (inevitable) complaints about specific items in the project’s operations.
In a market like ours, the only surprise is how slowly developers have been reacting to the news that there is a steady source of financing available for their projects. Without a doubt developers stand to benefit greatly from gaining the FHA approval on their vertical projects.