FHA Condo Approvals – The Need for Reserve Studies
An all-too-common aspect of an HOA’s budgetary issues is underfunding the reserve account. Not only is this one of the primary reasons for a condominium to be rejected by FHA or Fannie Mae, it can also lead to the need for large special assessments down the road.
For example, a roof with asphalt shingles typically lasts 20-30 years. To replace a roof on an ordinary single-family home, this can cost up to 20,000. For a condominium association with 20-50 building, the price tag for this undertaking becomes very large. If the proper amount of money is not set aside, the Board has to levy a special assessment to collect the necessary funds OR has to take out a commercial loan to fund the project.
This is why agencies such as FHA and Fannie Mae require that money is set aside annually for the funding of these projects for the future. This is why obtaining a reserve study is so important to the financial health and longevity of a condominium project.
A reserve study is basically an engineering inspection of the condominium project combined with the financial aspect of the periodic replacement of primary components of the project. It takes into account the life expectancy of the major components, determines the expense to replace them and calculates how much money needs to be reserved each year so that a special assessment will not be necessary in the future.
This is an oversimplification of the effort that goes into a reserve study.
Even if your association does not intend to apply for FHA project approval, following the recommendations in a reserve study is an effective way to show unit owners and potential buyers that the financial health of the project is taken seriously.
The video below was an online webinar about the basics of reserve studies done by Robert Nordlund, founder and CEO of Association Reserves, Inc. Association Reserves has been in business since 1986 and handles 3,000 reserve studies per year.
Image courtesy of patpitchaya/freedigitalphotos.net
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!