This program insures the loan for a person who purchases a unit in a condominium building.
One of the many purposes of FHA's mortgage insurance programs is to encourage lenders to make affordable mortgage credit available for non-conventional forms of ownership. Condominium ownership, in
which the separate owners of the individual units jointly own the development's common areas and facilities, is one particularly popular alternative. Insurance for condominiums, such as is provided
through Section 234(c), can be important for low- and moderate-income renters who wish to avoid being displaced by the conversion of their apartment building into a condominium.
The program insures a loan for as many as 30 years to purchase a unit in a condominium building--which must contain at least four dwelling units and can be detached or semidetached, a row house, a
walk-up, or an elevator structure. The loan is made by a lending institution, such as a mortgage company, bank, or savings and loan association, and is insured by HUD's Federal Housing Administration
(FHA). Most of the features of Section 234(c) mortgage insurance are the same as those governing HUD's basic FHA mortgage insurance program, Mortgage Insurance for One- to Four-Family Homes (Section
203(b)). For example, down payment requirements can be low--3 percent or less--because FHA insurance allows homebuyers to finance about 97 percent of the home's cost through their mortgage. In
addition, some closing costs can be financed, reducing up-front costs. And FHA limits some fees that lenders charge-for example, the loan origination charge. Finally, FHA sets limits on the size of
the mortgage loan that vary with location and the number of units being purchased.
However, Section 234(c) does have some additional, unique restrictions. If the apartment is in a building that was converted from rental housing, no insurance may be provided under Section 234(c)
unless: (1) the conversion occurred more than one year before the application for insurance; (2) the potential buyer or co-buyer was a tenant of that rental housing; or (3) the conversion of the
property is sponsored by a tenant's organization that represents a majority of the households in the project. Eighty percent of FHA-insured mortgages in the project must be made to
owner-occupants.
Developers may obtain FHA-insured mortgages to finance the construction or rehabilitation of housing projects that they intend to sell as individual condominium units under HUD's Section 234(d)
program.
Any creditworthy potential owner-occupant who meets FHA underwriting criteria and will make the condominium unit their principal residence is eligible for a mortgage insured under this program.
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