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The scope of condo purchases eligible for lower-down-payment loans is being vastly expanded by the Trump administration.

The Federal Housing Administration announced yesterday that this move could help revive the entry-level condo market for first-time buyers. This is because FHA-backed loans require only a 3.5% down payment, as well as, a lower credit score than conventional loans.

FHA now insures a million home loans made by banks and other private lenders, the vast majority of which are for single-family homes. The agency estimates, with the new rules, that it could insure as many as 60,000 additional condo loans each year. Furthermore, this is already on top of the 16,000 condo loans it backed in 2018.

Condos are a more affordable alternative in cities where single-family homes are increasingly out of reach for first-time homebuyers, like Seattle, Austin, and Denver. The median price of an existing condo or co-op unit was just over $260,000 in June, compared with nearly $290,000 for the median existing single-family home, the National Association of Realtors said.

Condon Ownership

“This is set to really expand homeownership,” said Ben Carson, secretary of the Department of Housing and Urban Development, which oversees FHA.

Spot approvals are one reason FHA became so enmeshed in risky condo loans during the previous housing boom. Mr. Stevens recalled that entire condo buildings are supposed to be certified before borrowers can get FHA loans there. However, the agency began routinely making exceptions and granting individual loans.

FHA tightened its lending standards for condos. These changes, beginning in 2008, included eliminating spot approvals. Since then, condo lending has become a niche part of its business: Only 6.5% of the 150,000 condo projects in the U.S. are FHA-certified.

Now, FHA will once again approve loans for individual units in buildings that aren’t certified. According to FHA Commissioner Brian Montgomery, the agency has tightened up the requirements to avoid the abuses of the last housing boom. Individual loans will be approved in most buildings only if no more than 10% of the loans are to FHA borrowers.

Condo’s in Miami and New York

Importantly, the new rules won’t help the struggling luxury-condo markets in Miami or New York. These FHA loans are targeted at moderate-income borrowers and are capped at around $350,000 in Miami and around $730,000 in the New York area.

Additionally, these changes have been in the works since 2016. They came to a halt when the presidential administration changed.

“It’s an insurable risk. Just do it with your eyes open,” said Ed Golding, a fellow at the Urban Institute and former FHA commissioner during the Obama administration. “It’s too important a part of the housing stock to just completely ignore.”