FHA Condo Approval Specialist: Does an Outstanding Loan Prevent an FHA Condo Approval?

Does an Outstanding Loan Prevent an FHA Condo Approval?

Does an Outstanding Loan Prevent an FHA Condo Approval?

fha condo approvalLast month, I was invited to attend a roundtable session in Washington D.C. as an industry expert for FHA Condo Approvals.  Prior to going, I inquired with my business associates and referral partners as what questions they would like to have answers about FHA approvals.

One of the questions that I received was from an attorney who works with condominium associations.  He asked how FHA views loans acquired by associations and if they have a negative impact on the approval of the condominium project.

The quick answer to that question is generally an outstanding loan balance to the association is not a detriment to the project’s approval.

However, when FHA analyzes the project’s financial picture, it takes all aspects into account.  Specifically, with loans, FHA reviewers will look for answers to the following questions:

1. What was the purpose of the loan?  If the loan was to fund large capital improvement projects, such as roofing, siding or paving, this is not typically looked at in a negative light.  If the loan was to cover shortfalls in an operating budget or to fund a capital reserve account, these are viewed as questionable practices.

2. Has the association been budgeting for capital repairs?  Funding of a capital reserve account for future significant expenses is required by FHA (and Fannie Mae, Freddie Mac and the VA).  If the association has been properly funding a reserve account, then an outstanding loan should be ok.

3. How is the association using reserve funds?  If the association has been funding a reserve account, how is it using those funds?  If it is using them to pay operating expenses, this is viewed negatively.  However, if the association has made a conscious decision to save those funds for a catastrophic event and is using a loan to fund capital projects, this is ok with FHA.

4. Has the loan been paid according to the terms?  Although evidence of satisfactory loan payment history has been required, FHA began to pay closer attention to this during 2013.  It now requires a printout of the payment history from the lender demonstrating that the loan has been paid on time since its inception.

Thus, generally, the responsible use of loans by associations should not prevent them from obtaining FHA condominium project approval.  Excessive use of loans and special assessments by associations could show mismanagement of finances and a lack of financial aptitude by the association which could lead to a request for a reserve study or outright denial of approval.

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 askeric@readysetloan.com 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

ready set loan condo team


 CAI-CT logo

 Check out our article in Common Interest magazine on page 19!

Find Eric Boucher with ReadySetLoan Condo Team on Google+

Comment balloon 13 commentsReadySetLoan Condo Approval Team • April 13 2014 05:22AM


Good morning Eric. As usual and outstanding report and information all of us in the mortgage and real estate business can use. I can always count on your information to be something that we can all use.

Make it a great week!

Posted by Joe Petrowsky, Your Mortgage Consultant for Life (Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709) almost 5 years ago

Good Morning Eric: It sounds like the guidelines is geared towards fiscal responsibility of the association which actually, in my opinion, is great.

Thanks for the update and for the new info.

Posted by Maria Gilda Racelis, Home Ownership is w/in Reach. We Make it Happen! (Home Buyers Realty, LLC-Manchester, Bolton. Vernon,Ellington) almost 5 years ago

Homebuyers have to do a lot of homework when buying a condo Eric. Thanks for sharing this info with us so we can guide outr clients through the process.

Posted by Rick Cignoli, Sr. Mortgage Loan Officer (Norcom Mortgage NMLS# 71655 Equal Housing Lender) almost 5 years ago

Hi Eric, Now this is the kind of stuff I look for in your posts. Good job.

Bill Roberts

Posted by Bill Roberts, "Baby Boomer" Retirement Planner (Brooks and Dunphy Real Estate) almost 5 years ago

Great post. It's not as simple as just having an outstanding loan. There's other factors involved that will make that determination. 

Posted by Suzanne Otto, Your Montgomery County PA home stager (Six Twenty Designs) almost 5 years ago

Eric from a Loan Originator prospective that is excellent information to know.  Thank you for posting this.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 5 years ago

Thank you Joe.  I appreciate your encouragement!

Maria - that is exactly what FHA is looking for.

Rick, no doubt.  I agree that condo buyers need to do their homework.

Thank you Bill.  I am pleased that you enjoyed it.

Suzanne, there are so many factors that are involved in getting approved.

I am glad that the information is helpful for you and other loan originators, George!


Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) almost 5 years ago

Eric - great information and a question I was wondering about as well.  In SF where I have a condo, the City of SF has passed a law requiring earthquake retrofits to buildings which meet certain criteria.  This was not an anticpated costs and associations have to find a way to fund the required retrofits... it sounds like this would be one of the loans that FHA would not look upon negatively.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) almost 5 years ago

Eric-I'm glad to know there is such a thing as a condo expert. Getting condo financing here has been quite a challenge. 

Posted by Wayne Johnson, San Antonio REALTOR, San Antonio Homes For Sale (Coldwell Banker D'Ann Harper REALTORS®) almost 5 years ago
Outstanding loans can do that my experience, but some people I deal with a rather wealthy to avoid that dilemma. Love and light, Laura
Posted by Laura Cerrano, Certified Feng Shui Expert, Speaker & Researcher (Feng Shui Manhattan Long Island) almost 5 years ago

Joan - I would agree with that assessment.  Similarly, in a neighboring town, a new fire mashall when ballistic on the condo projects and some spent hundreds of thousands to bring their buildings up to code.

Thank you, Wayne.  Condo financing is certainly tougher than it used to be!

It can be a matter of choice at times, Laura

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) almost 5 years ago


This is valuable information for sure. Thanks for sharing!

Posted by Mike Rankin, Mortgage Consultant (ClearPath Mortgage Solutions, Inc. NMLS #1394615) almost 5 years ago

You bet, Mike.  Thank you for reading.

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) almost 5 years ago