FHA Financing & Condo Purchases

condominiums

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There has been alot in the news lately about FHA financing & stricter guidelines they follow. Historically FHA loans have had stricter requirements: higher deposits, property condition requirements and in the case of condominiums owner occupancy rates, owner association requirements and restrictions, inspections, notices & paperwork. These items were mostly forgotten during the time of No-Document type loans, but with the riskier loan options all but gone, more and more buyers are working with FHA loan programs.

If your contemplating purchasing or selling a condo and it's in a price range where FHA financing might be an option it might be good to check to see if the condo development has been approved by the FHA to lend on.

https://entp.hud.gov/idapp/html/condlook.cfm - the FHA/HUD site to check the status of a condo development. You should still check with your local FHA/HUD mortgage representative or local office for the latest info but if the development is approved it'll make the process go a little quicker. If your contemplating selling, going through the steps to make sure your development is approved will be a real benefit for you & others in your development. Perhaps have your owner association look into it.

Guidelines to keep in mind (for most accurate & property specific advice always consult with your mortgage professional):

· Projects consist of two units or more.
· Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.
· Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.
· No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogenous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.
· No more than 10 percent of the units may be owned by one investor. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants.
· No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.
· At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan.[1]
· At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units.[2] For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies).
[1] Secondary residences can only be included if it meets the requirements of 24 CFR 203.18(f)(2).
[2] If the owner-occupancy ratio includes presales, FHA requires an executed sales agreement and corresponding evidence that a lender is willing to make the loan and the buyer intends to occupy the unit. A separate owner-occupancy certification is also required in the FHA case binder for loans where the Individual Condominium Unit Appraisal Report, Fannie Mae Form 1073, does not contain the required data or the condominium project is proposed or under construction.

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