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Condominium Changes and ADU Guidelines

To:  VHDA Originating Agents

Date:  August 24, 2009

Re:  VHDA Condominium Financing Guidelines
Affordable Dwelling Units (ADUs) and Resale Restrictions

1.  Condominium Financing

Recent market dynamics and more stringent industry guidelines have presented increased risk to VHDA in the financing of condominium units. This risk is increased due to the difficulty in obtaining mortgage insurance (or guaranty) on the loans in markets that are experiencing declining values. VHDA’s goal is to offer affordable financing to homebuyers of condominium units that provide long-term sustainable homeownership to the homeowner and acceptable risk to VHDA.

Financing with Mortgage Insurance or Guaranty
VHDA will continue to allow our standard financing of government-insured FHA, VA and RHS loans for condominium projects meeting the applicable insurer project approval. This includes the FHA Plus and Homebuyer Tax Credit Plus for FHA-eligible projects. 

Conventional loans must meet the project eligibility guidelines for Fannie Mae, Freddie Mac or FHA and the applicable private mortgage insurance company guidelines with VHDA’s standard mortgage insurance coverage. 

SPARC funding will be available for all insured loans.

Conventional Uninsured Financing in Declining Markets:
Effective October 1, 2009, VHDA will modify the guidelines for financing of condominium units of uninsured loans in declining markets.

  • Uninsured first mortgage loan - maximum 75.00% loan to value.
  • Minimum borrower contribution - 5% of sales price.
  • SPARC reduced rate funding not eligible.
  • Projects must be approved by Fannie Mae, Freddie Mac or FHA. Evidence of the approval must be included in the loan file.
  • Limited reviews will not be eligible.

Determination of Declining Markets
Markets affected by this change will be based on an assessment of the determination that the private mortgage insurers have identified as declining, distressed or restricted.  In addition, these new guidelines will apply if the appraisal indicates that the subject market is “declining”.  A listing of the current markets that will be subject to these guidelines is provided below. An assessment of these markets will be performed each quarter and made available to VHDA-originating lenders.

  • DC/Northern Virginia MSA
  • Richmond MSA
  • Virginia Beach MSA
  • Winchester/Frederick County
  • Danville
  • Harrisonburg

Effective Date: These new guidelines will become effective with new reservations beginning October 1, 2009. 

2.  Affordable Dwelling Units / Re-Sale Restrictions
VHDA requires that re-sale restrictions related to Affordable Dwelling Units or other affordable housing programs meet FHA guidelines. These guidelines require all re-sale restrictions relating to affordable housing programs to terminate upon foreclosure, deed-in-lieu of foreclosure or assignment of the insured mortgage to HUD. Please discuss this requirement with local governments that have re-sale restrictions in their program to ensure they meet requirements. VHDA is in communication with FHA to obtain clarification on requirements noted in Mortgagee Letter 94-2 that addresses these restrictions and will provide guidance when additional information is available.

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