It used
to be relatively easy for a condo complex (or “project” in FHA
parlance) to get certified by the FHA, meaning the agency would loan
money to qualified buyers of units there. But with the burst of the
housing bubble, FHA realized that a lot of delinquent and foreclosed
properties were condos. So it tightened its rules.
Essentially,
it ‘de-certified’ every condo and townhome and required each one to
re-apply for certification, giving plenty of notice about what was going
to happen. And in May it did just that.
Some
condo associations and management were on the ball and immediately
applied for recertification. But many — for whatever reason — did not.
Some may have not realized they had to get recertified. Others
may have had officers concerned about liability issues if they signed
certification documents. And of course some condos simply don’t meet the
FHA’s requirements.
Whatever
the reason, the end result is that buyers are ineligible for FHA
financing to buy a unit there — something many sellers don’t discover
until late in the process when they learn that their pool of prospective
buyers has shrunk considerably.
And
because the certification process can take months, deals fall through —
or never get off the ground in the first place. Fewer buyers means
prices will have to go down
Bottom line:
We need to get the word out to condo owners, condo associations,
property managers, and anyone who is involved in buying or selling a
condo or townhome: Find out whether your condo community is FHA certified.
It’s incredibly easy to do. Just go to VARealtor.com/condocheck.
Enter a ZIP Code or just the city and state and you’ll get a listing of
every condo association there. If the rightmost column says “expired,”
it’s not FHA certified. Then it’s time to get in touch with any affected
clients, as well as the condo board or association. There’s a good
chance they’re not even aware of the issue.
Requirements for FHA certification
For a condo complex (or “project”) to have its units qualify for FHA loans, it must meet the following requirements:
- Insurance Coverage: Projects must be covered by hazard and liability insurance and, when applicable, flood and fidelity insurance.
- Commercial Space: No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes.
-
Investor Ownership: No more than 10 percent of the units may be owned by one investor. This limitati
on also applies to developers/builders that subsequently rent vacant and unsold units.
- Delinquent Home Owners Association (HOA) Dues:
No more than 15 percent of the total units can be in arrears (more than
30 days past due) of their condominium association fee payments.
- Pre-sales: At least 50 percent of the total units must be sold prior to endorsement of a mortgage on any unit.
- Owner-occupancy Ratios: At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units.
- FHA Concentration: No more than 30 percent of the total units can be encumbered with FHA insurance.
- Budget Review:
The homeowners’ association budget must include sufficient funds to
“maintain and preserve all amenities and features unique to the
condominium project” as well as insurance coverage.
For the details, click here for a HUD PDF. OR Speak to your lender.
Submitted by Andrew Kantor Virginia Realtor Association.