HUD/FHA Condominium Approvals and Recertifications
This has quickly become a very hot topic as of late although the new condominium guidelines were created and adopted in November 2009. The reason for the delay is that HUD allowed FHA financing for "spot approvals" in non-approved complexes until February 1, 2010. Now spot approvals are no longer allowed. Because of this, financing has become much more difficult to obtain in non-approved complexes.
What has changed?
As mentioned above, HUD does not allow "spot approvals". A spot approval was available to allow FHA financing in a condominium complex that is not on the HUD-Approved list. This made it possible for buyers with low-downpayments to purchase in complexes that were not approved through HUD. As of February 1, 2010, this is no longer possible and I have heard of three examples in just the last couple of days where buyers could not obtain financing to purchase a Realtor-friend's condo listing.
Another big change is that during the current year, HUD has created a temporary set of guidelines for condo complex approvals that will sunset on December 31, 2010. After this year, FHA's guidelines for complex approvals will become more difficult.
In addition, complexes will now be required to get recertified every two years to ensure that the complex continues to meet HUD's guidelines, mainly for insurance and owner-occupancy rates.
As a result of these changes, the Veteran's Administration (VA) also released a memo saying that it will no longer be using the HUD Approved Condominiums list. Prior to the HUD changes, the VA also used the approved condo list in determining eligibility for VA financing. CHFA (Connecticut Housing Finance Authority) has also said that they will now ONLY use the HUD list and will not allow for spot approvals either.
Why is this important?
FHA loans constitute around 40% of all mortgages that are being written today. It provides financing for buyers with low downpayments. Because of the new changes, if the complex isn't approved, an FHA loan cannot be used to finance the units in the complex. If this isn't bad enough, it also rules out CHFA loans and USDA Rural Development loans because both of these loan programs also use the HUD Approved Condo list. This means that if you own a condo in a complex that is not approved, you will have to locate a buyer that is not buying with any of these types of financing. In the $100,000 - $250,000 price range, you could be missing out on as much as 75% of the buyers.
This doesn't only affect buyers, but also homeowners looking to refinance. FHA will allow a "Streamline" refinance without an appraisal on a condo in a complex that is not approved. But any other type of FHA financing, including Reverse Mortgages for seniors, will not be available in non-approved complexes.
What if my complex is approved?
That is great! But unless your complex was approved between October 1, 2008 and today, it will have to get recertified on or before December 7, 2010. As more and more complexes become aware of this, HUD's processing centers will most assuredly become bogged down with approval and re-certification applications as EVERY complex needs to do this.
What if my complex isn't approved?
If you are living in a complex that is not HUD-approved, then buyers who are approved for FHA, CHFA and USDA financing will not be able to purchase your unit. Since the VA also made changes, your complex may not be approved for VA financing either. You will not be able to refinance your unit with any of the loan types mentioned above and that includes not having the ability to obtain a Reverse Mortgage.
The only types of financing available for buyers looking to purchase your unit would be Conventional loans (Fannie Mae and Freddie Mac) which require a minimum of 10% down currently and lenders who offer "hard money" or niche financing. Even Fannie Mae and Freddie Mac have their own condo approval lists that aren't shared with the public.
What do I need to do?
The first step is to contact your condo's association leadership to make sure that they are aware of this. You can direct them to this blog or give them my contact information. In a 2-minute phone call, I can determine whether or not the complex is approvable. If it is, I have the list of paperwork and a questionnaire for the association to complete and I can aid in the approval process.
So, the bottom line is that if your complex is not approved with HUD, it needs to be. And with the lenient temporary guidelines for 2010, there is no better time to do it than the present. With more and more condominium complexes being made aware of the need to become approved or recertified, processing time will increase as the year progresses so it should be done now.
The Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their approvals with FHA and the VA or become recertified with FHA. We have assisted nearly 200 condominiums and we can help your association.
ReadySetLoan is an active member of the Connecticut and New England chapters of the Community Associations Institute (CAI) and is a frequent contributor to Common Interest Magazine as an expert in FHA/VA condominium project approvals.
Please contact us with any questions regarding FHA or VA condominium project approvals. You can email me at firstname.lastname@example.org or call me at 404-433-4565. I will be happy to answer any of your questions.
FHA/VA Condo Approval Specialist
404-433-4565 Cell Phone
860-644-3772 Fax Phone
Check out our article in Common Interest magazine on page 19!