Steps Involved in the FHA Condo Approval Process
The first step in the FHA condo approval process is to determine the basic eligibility of the condo based on the prevailing FHA condo approval guidelines. A significant amount of knowledge and information is necessary to assess a condo's eligibility against FHA's requirements.
The community and the area in which the condo is situated also needs to be thoroughly analyzed prior to proceeding with the approval process. If the condo development has a large number of units, it might be advisable to seek the help of consultants who specialize in getting FHA approval for condos.
While there are many other FHA condo approval guidelines that need to be met in order to get successfully certified by HUD, the following are some of the basic ones that can make or break your approval application. The following guidelines are based on the latest FHA mortgage letter issued in this regard on September 12, 2012.
- In the Home Owner Association (HOA) covenants, conditions and restrictions (CC&R's) there should not be a right of first refusal with any provision that violates the Fair Housing Act Regulation regarding discrimination.
- If there is a portion of the condo development devoted for commercial space, it can not exceed beyond 50% of the total space. This provision regarding commercial usage was added in the September 2012 update.
- The entire condo project must be 100% complete. This applies to all units, phases and facilities that come under the project.
- The total number of delinquent HOA's dues beyond 60 days must not be more than 15% of the total units. Prior to this Sept 13, 2012 update, the number of days for delinquent dues was for just 30 days. This is a positive measure.
- If it is a new development, at least 50% of the units must be sold prior to seeking a HUD endorsement or certification for FHA financing eligibility.
- No single investor or entity must not own more than 50% of all the units if at least 50% are occupied by owner-occupants as primary residences. The previous limit restricted the number of units held by a single entity to just 10% of the total units in the condo development.
- The current number of units with existing FHA financing should not exceed beyond 50% of the total space.
- There should be at least 10% of the total HOA's total budget towards reserve funding. This is made to ensure that there is a sufficient cushion in reserves.
- There should not be any ongoing litigation except for any routine collections or foreclosures.
- Another import requirement to get a condo approved by FHA is the insurance coverage. The master or blanket policy must have sufficient coverage for 100% replacement cost of the condominium, excluding the foundation and land cost.
- All the common facilities and pathways must be covered under a general liability policy.
- If the condo complex contains 20 or more units, then there should be a fidelity bond that covers the directors, officers and employees who handle the funds of the HOA. The minimum amount is based on the total aggregate amounts of all the units plus existing reserves.
- Letter of Map Assessment (LOMA) and Letter of Map Revision (LOMR) is required if the condo comes under the 100 year floodplain. In such cases, a mandatory flood insurance policy is a must.
To successfully get through the FHA condo application and approval process, a series of mandatory documents are required. The help of the condo board (HOA) or community manager actively involved in the operations is necessary to gather the condo approval documents in time.
A number of documents must be compiled and presented in the HUD prescribed manner in order to get a condo approval. All FHA approved condos must present the following documents:
- Gather all legal documents related you condominium association. The recorded CC&Rs including the complete declarations along with the master deed is required.
- Additionally, the adopted bylaws signed and dated must along accompany the condo legal documents for FHA approval. The articles of incorporation and other pertinent information filed with the state must also be submitted.
- Another essential set of documents are related to the condo association's financials. A balance sheet and income statement prepared within the previous months from the date of application is necessary.
- A document detailing the proposed budget for the year along with the previous year's completely audited financials (Balance sheet and Income statement) must also be in file.
- A detailed summary of the current delinquencies prepared within the preceding 30 days of HUD condo application filing is also mandatory.
- As mentioned in the FHA condo requirements, proper documentation showing the insurance coverage must also be submitted. The master insurance policy, general liability insurance, fidelity bond and flood insurance related documents must accompany your approval package for FHA condo certification.
- Unless the condo is self-managed, the agreement with a management company providing all the essential services is also required.
Review Before Submission
After you have deemed that your condo meets most of the FHA requirements for getting an approval and have the necessary documents in hand, perform a thorough step by step review.
The total duration of the entire process may take anywhere between 30-60 days. By carefully putting together all the necessary documentation based on FHA condo guidelines, any potential stumbling blocks that may hold up the process may be identified ahead of time.
Before submitting the complete approval package to HUD for condo certification, consult specialists that have experience in handling the approval process.
Incomplete documentation along with the omission of required information are some of the primary reasons for the long delays commonly experienced by those whose who have sought condo certification from FHA. It is not uncommon to see the FHA condo approval process take longer than 6 months in case of deficient applications.
The longer the process takes, the difficult it becomes for buyers seeking financing through FHA loans. Significant delays can lead to failed real estate transactions and expired contracts. Therefore, it is highly essential that all the requirements and guidelines are thoroughly understood and the necessary supporting condo documentation is submitted to HUD.
Once a complete FHA condo approval application package is submitted to HUD, they take about 30 days to carefully analyze and verify the required documentation and information. If all the requirements are satisfied and the information is as per the guidelines, HUD will approve your condo for FHA financing.
Once this final step is finished, your newly approved FHA approved condo will be added to their list of approved condos. Anyone interested to verify this info can just look up your condo certification validity along with the expiry date using the HUD website.