Posted by: phillipsre | November 21, 2013

Important Information for FHA Pre-Approval for Condominiums

iStockPhoto_CondoBuildingAn FHA loan is a mortgage insured by the Federal Housing Administration. Due to recent changes in federal law, an entire condominium or town home community must apply to the US Department of Housing and Urban Development (HUD) in advance to be granted FHA approval so buyers can purchase units with an FHA insured loan and existing owners can refinance into an FHA loan. Approval was formerly processed unit by unit with use of a project questionnaire.

According to many real estate agents and consultants, a condominium that is pre-approved for an FHA insured loan will allow a seller to market to a broader spectrum of potential buyers, thus making the unit easier to sell.

Should your association seek FHA approved status? In our experience, that partially depends on the type of potential buyers that want to purchase within the condominium. For example, if your condominium is more attractive to first time buyers, then yes, you would want FHA approval. If your condominium is attractive to more established buyers (units on the higher price spectrum), then no, obtaining FHA approval would not be as necessary. The high-income earning buyers are less likely to need the type of protection that FHA loans provide. There is a limit on the loan amount FHA will insure. In King, Pierce and Snohomish Counties, the 2013 basic standard mortgage limit for FHA insured loans is $521,250 in a community comprised of more than four units.

There are several basic requirements that must be met by a condominium project to receive FHA approved status:

· The project must be primarily residential (excludes work lofts, moorage condos, etc.)

· No more than 25% of the property’s total floor area (within the project or within the unit) can be used for non-residential purposes

· No more than 10% of the units may be owned by one person or entity

· No more than 15% of the total units can be more than 60 days past due on their assessments

· At least 50% of the units must be owner occupied (second homes do not count against this number, units rented to family members are considered non-owner occupied)

· Less than 50% of the mortgages within the project are FHA-insured

· The project meets minimum insurance limits as defined by FHA

Several of our Community Association Managers have found that certain rental restrictions will create a barrier for FHA approval. FHA will allow rental restrictions if they meet one or more of the following criteria:

· Leases must be in writing and subject to the declaration and by-laws of the association

· The association is allowed to request a copy of the lease/rental agreement and the names of the tenants who will occupy the units

· Units may not be leased for an initial term of less than 30 days

· The association has established a maximum allowable lease term (i.e. six months)

The association has the ability to establish a maximum number of rental units (a cap) that does not exceed the FHA requirement. The association may not require a tenant be approved by the association prior to move in.

The FHA revises the requirements and stipulations for approval status on an ongoing basis. The influx of REO properties (Real Estate Owned by the banks), units in receivership, and the increase in delinquencies has put increased pressure, and scrutiny, on associations wanting preapproval for FHA insured mortgages. You can find out if your association is already FHA approved by using this link.

If you are with an Association that is currently managed by Phillips Real Estate Services and fits the approval criteria and you would like to apply for pre-approved status please contact your Community Association Manager. Phillips provides FHA Approval Application Services for a fee and will coordinate providing the documents and content needed for the application submission at your board’s request.

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