If you're planning to buy a condo with FHA financing, it is essential that the condo unit's association is FHA approved. We have gathered the complete list of FHA approved condos and organized them according to location and current status.
Until very recently, getting a FHA approval for a condo development was not of great significance. The previous FHA loan guidelines allowed for the mortgage lender to submit for a spot approval of individual units right before closing. But the situation is different now.
Starting from February 1st 2010, FHA has completely abandoned the practice of giving spot approvals for individual condos. Now, the entire condominium development as a whole must be FHA approved.
To gain the approval, the condo certification process must be successfully completed through HUD. Only then can a new buyer of a condo apply for a FHA-insured home loan program through FHA approved mortgage lenders.
If you are wondering if it is possible to get a FHA loan on a condo, the answer is YES. But the condo you wish to purchase must have an existing FHA condo approval. If you have decided to obtain FHA financing, then you should do a FHA condo lookup to make sure that the condominium complex in which the condo you are interested in buying has been approved by US Department of Housing and Urban Development (HUD). This step will save you a lot of time during the loan process.
According to the latest FHA condo rules, a prior certification is necessary in order for individual units to become eligible for financing through a FHA mortgage. This condo certification process involves the fulfillment of a number of guidelines and requirements.
As the newly issued FHA condo approval guidelines contain a number of potential grounds for liability related to unit ownership and usage, many condominium HOAs are foregoing the entire certification process completely. The liabilities for violating any of the rules or misinformation during the condo approval process can be as high as $1 million in fines and potential prison time.
While this may be the case, there is a bit of silver lining in the recently announced temporary changes pertaining to the certification of condos by FHA. The most prominent among them are:
The total percentage of units with outstanding condo association dues that are delinquent for more than 60 days should not exceed 15%. The previous requirement was for 30 days.
Another significant change is also announced regarding mixed-use development projects in the residential, retail and commercial space. Such developments can also seek the FHA condo certification, provided the commercial activities do not cause any harm or have negative impact on the residential component.
The above mentioned changes related to FHA condo guidelines are effective immediately. More changes may also be expected in the near future as FHA seeks to completely overhaul the condo certification process.
If you had looked around and did not succeed in finding a condo that is eligible for FHA financing, the new guidelines may work in your favor. Hopefully, more condominiums will likely become approved due to the newly issued FHA condo eligibility requirements.
Back in the day when FHA loans were a tiny portion of new mortgage loan originations, many condo associations had little incentive to fulfill the certification requirements. In 2005, the total number of FHA insured loans accounted for just 2% of the total residential mortgages. Many conventional lenders back then were allowing for home financing with little down payment for even sub-prime borrowers with very bad credit and no income or asset documentation.
Those days are long gone and the financial crisis has resulted in a complete paradigm shift in residential lending. Currently, FHA financing is the only reliable and reasonable source for borrowers who have little money to put down towards down payment or have spotty credit history.
In fact, a huge percentage of the current pool of homebuyers and homeowners are seeking FHA mortgage loans to purchase or refinance their homes. The same reality also applies to the buyers and owners of condos seeking financing.
Since the beginning of the financial crisis in 2008, the number of borrowers seeking FHA financing has increased dramatically. Currently, about 40% of all new mortgages are financed through FHA insured loan programs. In addition to the traditional purchase and refinance transactions, most HECM reverse mortgages also require condos to have prior certification.
If a condominium does not hold a prior condo approval from HUD, they will lose out on a number of potential buyers. This deficiency can have many negative effects on the financial health for new and old condo developments alike.
Failing to appeal to new home buyers who make up the biggest share in the current real estate environment can make your properties sit on the market for a lot longer than they would otherwise if you had FHA condo approval. Only those buyers who may have access to financing from other lending sources beyond FHA lenders may find your condos appealing.
Without a FHA condo approval in place, the units will potentially sit on the market due to diminished pool of first time buyers eligible for financing through FHA insured mortgage programs and may also have to be sold for below market prices.
Right now, both Fannie Mae and Freddie Mac also accept FHA condo approval for eligibility under their guidelines. Despite the rapid rise in the new FHA loans, the newly announced expansion in FHA's corpus seem to indicate that there is no significant slow down forthcoming in the near future. The share of FHA loans only seem to increase from the current levels.
Being an FHA approved condo allows for a quicker sale as they appeal to a much larger pool of homebuyers. The flexible guidelines and requirements regarding down payment, credit score and debt ratios, needed for FHA loan eligibility are currently not offered by other conventional lenders. These features make it quite compelling to get your condo approved by FHA.
Another significant advantage is the assumable option of FHA mortgages. FHA guidelines allow for one buyer to assume an existing FHA insured loan. Additionally, having a condo approval by HUD is seen as a vote of confidence in the management and financial position of the HOA by both conventional mortgage lenders and new condo buyers.
This entire dilemma can be avoided by taking steps to get your condo approved by FHA. With a HUD approval in place, your condo units will be more likely to sell quickly and may also command higher prices. This can have a positive effect on the entire development through higher appraised values due to suitable comparable sales.