Obstacles In Buying Condo With FHA Loans Versus Conventional Loans
This BLOG On Obstacles In Buying Condo With FHA Loans Versus Conventional Loans Was UPDATED On December 8th, 2018
Condominiums is considered riskier investments than single family homes. Borrowers who can only get approved for FHA Loans cannot necessarily any condo of their choice. The Condominium Complex needs to be FHA APPROVED/ Why Should a Condo Get FHA Approved?
What should buyers and sellers know about FHA condo approval requirements?
- Plenty! First and foremost a real estate professional should know that having FHA condo approval can be critical
- The bar is set high
- Both buyers and sellers should educate themselves on the FHA process – for sellers to be more marketable to prospective buyers, and for buyers to take advantage of these low-down payment loans
- For those who are not familiar with the term FHA loan, it stands for the Federal Housing Administration
- Essentially it is a government backed loan that allows those borrowers who have not saved a substantial amount of money but otherwise have good credit and stable employment to get financing
- Both sellers and buyers need to be aware of just how important having FHA approvals can be!
FHA Condo Requirements
The FHA condo approval requirements are 95 pages long, vary with the type and size of the condo, and are not easy to summarize.
- Much of it has to do with what constitutes acceptable documentation and procedures
- In general, the requirements are designed to protect residents against financial hazards arising from their responsibility for the condominium’s affairs
- Rules that protect the residents also protect the lenders who make condo loans, which in turn protect FHA as the insurer of those loans
Buying Condo With FHA Loans And Its Requirements
Here are a few of the more obvious ones:
- On a new condo, the developer must have sold at least 50% of the units in the project to permanent owner occupants
- This minimizes the risk that the condo is not economically viable
- No more than 15% of the units in the condo can be delinquent more than 60 days on their condo association fees
- This minimizes the risk that those residents who actually pay dues will have to cover the deficiencies of those residents in arrears
Condo Complex Liability
The condominium must be covered by hazard, flood, liability and other insurance required by state or local condominium laws or acceptable to FHA.
- This minimizes the risk that a natural or other disaster will jeopardize the solvency of the condo
- Note that Fannie Mae and Freddie Mac have condo requirements that are similar to those of FHA, though less extensive
- If a mortgage loan that will be sold to one of those agencies is secured by a condo unit, the condo project must be approved by the agency purchasing the loan
FHA Condo Approval for Sellers
A condo owner/investor interested in re-selling their condo or even a realtor engaged in listing condominiums for sale as part of their normal business may wonder why FHA approval for condo complexes is important to them.
- The answer pertains to return on investment (ROI) for owners and ease and expedience of sale on the part of realtors
- Having FHA mortgage approval increases the odds that selling a condo will happen quickly and at top value by increasing your buyer pool (more buyers eligible for purchase)
FHA Condo Approval for Buyers
There are many reasons for a buyer to choose an FHA approved condo, not the least of which is the possibility of a small down payment loan. FHA approval requires adherence to some quality control requirements that few associations can meet.
- National Mortgage News claims that approximately 60 percent of associations are denied approval from the FHA, a serious vetting process that cuts no corners in its demands on condo associations
- The FHA only wants to loan money on properties that are considered a sound investment and these requirements are deemed necessary to guarantee such investments reasonably
- By purchasing a condo that is eligible for an FHA loan, a borrower has allowed the government to essentially guarantee investment
- Not only have you managed to get a good loan towards your purchase, but you have also ensured that a good majority of people living in your condo association will be owners as opposed to investors
- Owners often have a greater % of being current on maintenance/condo fees than investors
- Owners have more “skin in the game” for obvious reasons
Things To Know About Buying Condo With FHA Loans
Perhaps even more important, you will guarantee that your condo association has reserves of cash that are at least equal to a year’s worth of fees from the association.
- This means that when something goes wrong that affects the whole complex, such as roofing issues or flooding problems, your association will have the money to address those problems, instead of issuing a surprising and costly “assessment” on the owners
- As a bonus, your association is virtually guaranteed to be free of legal problems as of the time of your purchase
- When you have invested with numerous other individuals in a property, this can make a big difference
Questions To Ask When Buying Condo With FHA Loans
A borrower should ask some important questions before purchasing a condominium about FHA approval.
- Finding out the answers to these issues can save a lot of anxiety for the buyer in the future
- A condominium is a uniquely different purchase from other properties with their own nuances and real estate professionals should treat them as such in order to add value to their clients
About The Author
The Author Of This Blog, Obstacles In Buying Condo With FHA Loans Versus Conventional Loans, is Alex Carlucci. Alexander Thomas Carlucci is a licensed mortgage loan originator and guest writer for Gustan Cho Associates. Alex Carlucci, who holds a Juris Doctorate Law Degree and Masters Of Laws Degree, owns two condos himself and is an expert in real estate investments, financing, and lending. Alex is a guest writer for Gustan Cho Associates Mortgage Group and its affiliates sites and is licensed to originate mortgage loans in multiple states. Alex’s expertise is government and conventional loans with no lender overlays and is a correspondent lender on non-qm loans, bank statement loans for self employed borrowers, condotel financing, non-warrantable condominium loans, and commercial loans. Stay tuned for more of Alex Carlucci’s blogs.