Friday, December 11, 2015

"What Happens Now"-FHA Financing for Condos

A condominium association wants to obtain Federal Housing Administration approval for FHA refinancing of current unit owner loans and FHA purchase money loans for future owners.  They come to you as the association Board of Directors or the association’s professional community association manager, asking how this can be done… What Happens Now?  

Ensuring that your condo or townhome association is on the FHA approved list is important to everyone because:

1.     Potential buyers may not otherwise qualify to purchase a home in your association.

2.     Current owners who may want to sell one day will have a larger pool of buyers for their unit.

3.     And it’s important to the association itself, as that larger pool of buyers helps create more competition which raises unit prices.

In years past, an FHA-approved association wasn’t so important because lenders could do “spot loans” for specific units.  New laws changed the way things used to be done so that the FHA-approved pool of buyers can now only purchase in associations which as a whole, are approved for FHA financing.

How to Qualify for FHA Approval

The HOA must have:
·        At least 50% occupancy by owners
·        No more than 15% of units being delinquent by 30 days on assessments
·        No more than 25% of total floor space used for commercial purposes
·        At least 10% of the annual budget going to reserves
·        At least two or more units
·        Insurance coverage, including hazard, liability and flood (if needed)
·        No more than 10% of the units owned by a single entity
·        All units and common spaces completely built
·        Association must also be in compliance with state law and other applicable regulations.

How to Obtain or Renew FHA Approval

1.     Find out if your association is currently approved by visiting the HUD website at  Condo and town-home associations must reapply for FHA approval status every two years.

2.     If your association is approved: the HOA must simply reapply when its two-year period is coming to a close. 

3.     If your association is not approved: there are two ways to gain approval:

i.                 If a potential FHA buyer is working with a large lender, that

lender is likely eligible to certify your association through the Direct Endorsement Lender Review and Approval Process (“DELRAP”). Certification can take two to four weeks; or,

ii.               The association can apply directly through the HUD Review and Approval Process (HRAP), which can take four to six weeks.

Both routes have their pros and cons.  The HOA Board will need to discuss what works best for the association.  As with any major policy, the Board should communicate its decision to the homeowners.