Why Should My Condo Complex Become HUD-Approved?
This is a question that I have heard from several different people recently, and it is a valid question. There are MANY reasons for obtaining a HUD approval for your condominium complex and I will discuss them here.
[Side Note: I am in Connecticut so I may use some details that pertain only to Connecticut although many states have similar loan programs. The vast majority of the information here is applicable throughout the country.]
The majority of the condominiums in my neck of the woods are in the $100,000 - $250,000 price range. The buyers in this price range are typically first-time buyers and retirement-age buyers. Let's take them individually.
First-time buyers that are not Veterans have only a few loan options that allow for low-money down and no-money down. In Connecticut, they are FHA (3.5% down), CHFA (0% down) and USDA RD (0% down). What all three of these loan programs have in common is that they all on run on HUD's approved condominium list.
According to recent changes, these three loan programs cannot be used to finance any unit that is in a condo complex that is not HUD-approved. Until February 2010, FHA allowed spot approvals. A "spot approval" allowed for FHA financing to be utilized in complexes that were not HUD-approved. The individual units could be approved for financing even if the complex was not.
Now that spot approvals are no longer allowed, complexes that are not HUD-approved rule out first-time buyers who are looking to use FHA, CHFA or USDA financing. This leaves only Conventional loan products and niche-lender financing products. Conventional loans (loans that are ultimately purchased by Fannie Mae or Freddie Mac) require a minimum of a 10% down payment. How many first-time buyers have $10,000 - $25,000 to invest in their first home? When you add in closing costs, we are talking about a minority of first-time buyers.
By not being HUD-approved, the complex is ruling out the majority of first-time buyers.
So what, right?
This could lead to increased marketing times as qualified buyers are more difficult to find. This could also lead to a decrease in the prices of the units in the complex because of the law of supply and demand.
Here is what one condo unit owner had to say about trying to sell his unit when his complex wasn't HUD-approved:
"After my condominium had been listed for sale for over a year, I came to find out that my condominium association was not on the FHA's Approved Condominium Projects list, which is a requirement for any buyer wishing to purchase a home using an FHA loans. This was a major cause for my inability to sell my unit...I had a signed contract on my Condominium Unit the very same day the FHA approved our Association." ~Brian, Quonnipaug Hills Section III, Guilford, CT
I say that luck had something to do with getting a signed contract the same day as the approval, but without the approval, he would have had to turn that buyer away.
Retirement-age buyers may not be affected in the same way as first-time buyers. Many of these buyers sell their homes to move into a condo for more carefree living, where they don't have to maintain the property's exterior and grounds. In selling their homes, they may have money to purchase in the complex with large down payments or without having to obtain financing at all.
Where it does affect them is if they eventually need to apply for a Reverse Mortgage as the only provider of reverse mortgages is FHA. If the condo complex is not on HUD's list, an FHA reverse mortgage cannot be obtained in the complex.
Refinancing with FHA loans is also impossible if the complex is not HUD-approved aside from an FHA-to-FHA Streamline refinance. However, if the unit-owner does not have an FHA loan now or cannot qualify for a Streamline transaction, the loan cannot be done.
There are thousands of condo complexes that are not HUD-approved but could be. Because HUD allowed "spot approvals" there was no reason previously to become HUD-approved. Now, it is imperative as FHA, CHFA and USDA loans are in such a high demand.
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!