FHA loosens mixed-use standards: Main Street could benefit

A late September change in Federal Housing Administration standards loosens restrictions on commercial space in residential buildings. The percentage was capped at 25 percent, but the rule allows exceptions up to 35 percent or higher (50 percent maximum) if there is no adverse affect on the residential units. This could enable more Main Street, mixed-use buildings to be financed. The new standards will allow such mortgages to be resold on the secondary markets — and therefore more banks are willing to make the loans. FHA loans are extremely popular because qualified buyers can own a home for as little as 3.5 percent down, reports the Under the previous standards, set in the 1930s, small mixed-use buildings were — somewhat arbitrarily — placed in a higher-risk loan category that could not be resold. An illustration of "form follows finance," that rule led to few Main Street buildings  constructed since the 1930s. The Congress for the New Urbanism has long advocated for the elimination of these restrictions on mixed-use — arguing that mixed-use actually diversifies a building and therefore cuts risk. The new rules are a cautious step in that direction. "Now mixed-use developments with office and retail space that didn't qualify are eligible for approval provided they meet the extra requirements," reported Steve Stenger in the Tribune.

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