Experts say, even with changes FHA made to its condo restrictions in response to congressional criticism, mortgages will remain hard to arrange. (HomeVisit)

If you’re a first-time buyer with a moderate income and not much cash for a down payment on a condo, the availability of Federal Housing Administration financing is a big deal. Not only do you need a down payment of just 3.5 percent, but FHA is also far more flexible on credit compared with other financing sources. With a sub-par FICO score and a high debt-to-income ratio, banks and big investors such as Fannie Mae don’t want to know you. FHA welcomes you with open arms.

The challenge for condo purchasers in the past several years, however, has been finding a condo project that is certified by FHA as qualified for mortgages on individual units. Because of controversial eligibility rules imposed by the agency in recent years, the number of certified projects has plunged, with barely 20 percent of previously eligible condo communities now open to FHA loans on units, according to real-estate industry estimates.

As a result, FHA’s once pivotal role in helping first-time buyers and others purchase moderate-cost condos has shrunk from 80,000 to 90,000 mortgages per year during the past decade and a half to 22,800 last year. Through August of this year, condos represented barely 2.8 percent of total FHA loan volume. The agency prohibits “spot loans” made on single units in a project; if the whole community isn’t certified, nobody gets FHA financing, including existing residents who need to refinance their loans or obtain a reverse mortgage.

All of this has provoked bipartisan criticism on Capitol Hill, particularly among advocates for FHA’s traditional customer base: minority buyers, first-timers and the non-wealthy.

Faced with a congressional legislative proposal mandating reforms of its condo rules, FHA responded last week. At a convention of the National Association of Realtors in San Diego, FHA’s top official, Edward L. Golding, said the agency is simplifying some of its condo certification procedures, easing restrictions on condo association insurance and making a technical change to its requirements on non-occupant residency in projects. The president of NAR, Chris Polychron, called the changes “a win and a tremendous first step in the right direction.”

But will they really matter to you, whether you’re a potential buyer searching for an eligible condo project or a unit owner looking to sell or refinance? Maybe. But the reforms FHA outlined don’t address the key reasons why so many condo associations no longer are certified and why so many first-time buyers and minorities have been shut out.

In fact, Christopher L. Gardner, managing member of the consulting firm FHA Pros, which assists homeowner associations through the thicket of certification rules, said the changes amount to “a lot of sizzle and little steak.” Dawn Bauman, a senior vice president for the Community Associations Institute, which represents more than 33,500 condo and homeowner associations and managers nationwide, said that while some of the changes look “helpful,” there’s “a lot of hype” surrounding the announcement and “a lot more work to do.”

Condo consultant Natalie Stewart, president of FHA Review in Orange County, Calif., told me that given the modest scope of the changes, “I’m shocked that they bothered to come out with this at all.”

What’s not addressed that would really impact individual buyers and sellers quickly:

Spot loans. In past years, FHA permitted lenders to make loans on single units in non-certified communities with certain restrictions, but no longer. Because the vast majority of previously eligible condo projects around the country have opted out of the FHA program, the modest simplifications to the certification process probably won’t be enough to attract many of them back. Last week’s announcement did not even mention spot loans.

Transfer fee restrictions. In some parts of the country, condo associations collect a small fee — a contribution toward capital expenses and repairs of community facilities — whenever a unit sells. FHA objects to these as restrictions on the free transferability of properties and refuses to approve them. As a consequence, some large associations — including one in Southern California with 7,000 homes — no longer are eligible for FHA financing. The new changes are silent on the subject.

Rigid rules on budgets, reserves, lease approvals and limits on commercial space.

Bottom line: If you’re counting on FHA to help finance your condo purchase, it’s possible the new changes will convince more associations to seek eligibility. But as consultant Gardner said, there’s more sizzle here than red meat.

Ken Harney’s e-mail address is