New York Luxury Condo Buyers have New Financing Option

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Until very recently, buyers of New York Luxury Condominiums, particularly those on the Upper East Side, would never consider applying for a mortgage from the Federal Housing Administration. One reason is that most NY luxury condominiums were priced above the dollar limit for government-backed mortgages. Another reason these mortgages were an afterthought was that the FHA rules made these types of loans very unattractive for Manhattan condominium associations. However, in 2008, the FHA adjusted its lending limits higher for select housing markets, reflecting rising property values in those areas of the country.

The FHA raised the maximum loan amount to $729,750 from $362,790 for Manhattan, some areas of New Jersey and other parts of the country where property values tend to be higher through demand, location and other factors. The enhanced FHA maximum loan amount program has been extended through 2010 and industry observers expect it to be extended again sometime in 2010. Recently, the FHA announced that it plans to relax loan restrictions specifically for condo buyers so more can qualify for FHA loans. Observers also expect these new rules targeting condo buyers will make it easier for people with a checkered credit history to buy what many of us would view as a NY luxury condo, albeit on the lower end of the scale.

One Manhattan mortgage lender was optimistic about the new FHA rules for Manhattan condo owners. “This will absolutely be a big help for condo buyers. The loans are still more costly for people, but it will at least allow them to gain entry into condos, and they can always refinance into more traditional, better-priced loans,” she said.

Since the mortgage market collapsed in 2007, FHA mortgage loans have become more attractive and practical for homebuyers, as these types of loans are easier to get for buyers with lower credit scores or those who want to buy, but have little money saved for a down payment. With an FHA-backed home loan, buyers who qualify may purchase a home with as little as a five percent down payment and credit scores as low as 600. Nevertheless, like many other forms of credit for people with spotty credit histories, these relaxed lending standards come at a price—FHA-backed mortgage holders have to pay a FHA insurance premium added to their monthly mortgage payment.

Even though many NY luxury condo buyers may have to pay more each month for their FHA mortgage, prospective buyers welcome this development, as they really didn’t have this option until now. Old FHA rules dictated that a condo buyer could not receive a loan unless the condo development obtained FHA approval. This was an impractical route for buyers of NY luxury condominiums and other Manhattan condos due to the lengthy approval process. Sellers were much less inclined to wait for FHA approval when other buyers had less restrictive financing lined up.

Other FHA restrictions also alienated New York Luxury Condo buyers and sellers in Manhattan and elsewhere. Most Manhattan condominium associations were disinclined to apply for FHA approval as the agency would not honor “right of first refusal” clauses in ownership agreements, a standard contract clause in the overwhelming majority of condo associations in New York City and elsewhere. The FHA removed this key restriction when they reviewed their lending policies last year.

In yet another welcome development for Manhattan condo buyers and sellers, the FHA drastically reduced the qualification process for lenders. If a lender believes that a condo complies with FHA lending rules, a mortgage lender can approve a condo mortgage without having to endure the application process. However, these relaxed lending and application standards for condos are not permanent. Lenders may grant condo mortgage approvals until January 31, 2010, but many lenders expect that deadline to be extended sometime next year, especially if the condominium market across the country remains sluggish.

While buyers and sellers of New York Luxury Condominiums are optimistic about the new FHA lending rules, FHA-backed mortgages are not cost-effective mortgages for buyers by a large margin. As of October 2009, the average selling price for a Manhattan condominium was $1.8 million. While only NY luxury condos on the lower end of the price spectrum will qualify ($729,750), the FHA insurance premium added to each monthly payment could mean up to an extra $750 or more. Considering those extra costs, the relaxed rules for FHA-backed Manhattan condo mortgages are really a mixed blessing for buyers.

Article Source: http://depositarticles.com/

NY condo news from www.Manhattanhouse.com, one of the most artistic of New Yorks Luxury Condominium Residences.

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