7 Benefits of FHA Condo Approval: The Pros, Con’s and Common Misconceptions

The 7 Benefits of FHA Condo Approval

1. FHA Condo Approval Dramatically Increases the Pool of Potential Buyers

Statistics show that approximately 60% of new home buyers intend to use an FHA Loan. If your community does not have FHA condo approval, you potentially limit the buying pool to only 40% of home buyers.

NOTE: These are “regular” buyers. An FHA loan is not associated with low income HUD programs, such as Section 8. In some counties, an FHA insured loan can reach amounts of $800,000 or more. Since the recession, most American buyers are using FHA insured loans, and this will be the trend for years to come.  In the Greater Philadelphia area, most new developments are FHA approved (ex: Cutler, Toll Brothers, Westrum, etc.).

2. Increased Home Value

FHA approved condos have a larger pool of prospective buyers, thereby increasing competition and demand for the product. This can result in higher purchase prices and an increase in market value–simultaneously increasing the value of units throughout the community.

3. FHA Loans Are Assumable

This means that in the future an FHA Loan can be assumed (including the interest rate) by a new buyer. With interest rates at an all-time low, this can be a very valuable asset to an HOA community.

4. Marketability

Some real estate agents won’t show units that aren’t FHA approved. Being approved sets your community apart from others in your same area.

5. Awareness

Going through the FHA condo approval process gives your homeowners a sense that the Board cares about the community and wants it to thrive. Avoiding the approval process may hamper your homeowners when they go to sell their units.

6. Less Renters in the Community

Generally speaking, communities without FHA approval will attract buyers that can make large down payments. These buyers are usually investors who will rent the property for a profit. Buyers who use FHA loans are more likely to reside in the unit, and not rent it out.

7. Fiduciary Duty

Board members and property managers are expected to maintain property values in their communities. Several HOA attorneys advise that it is the fiduciary duty of the condo board to apply for FHA condo approval to maintain or increase property values for residents.

The Cons of FHA Condo Approval

At this time, there are no “cons” to being FHA certified. In fact, chances are that your community was certified when it was developed.

Misconceptions Regarding FHA Condo Approval

1. Being FHA certified will attract “low-income” buyers.

FALSE. FHA condo approval is unrelated to affordable housing programs. The FHA can insure loans upwards of $800,000 in some areas, and since the recession, the majority of American buyers are using FHA insured loans–a trend we’ll likely see for years to come.

2. FHA loans caused the mortgage crisis.

FALSE. FHA loans are not sub prime loans. Although they do offer lower downpayments than traditional mortgages, there are credit score requirements, debt-to-income analysis, and income verification. In 2009 FHA loans made up about 2% of the loan market; in 2010 they were up to 40%; and by 2012 over 50% of all loans were FHA.

3. The guidelines are too strict, and it’s cost prohibitive.

FALSE. Well managed and financially stable communities have no trouble becoming FHA approved, and the cost has dropped dramatically since 2010. Often the cost to the association for obtaining approval is 100% covered as long as there is an approved HECM mortgage candidate in the complex. This can be a real win/win.

We can help you get the approval process started.  To learn more, contact us at 1-800-762-6315.

Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP® is a Retirement Income Certified Professional and one of the Nation’s Leading Educators on the Emerging Role of Reverse Mortgages in Retirement Income Planning. He is president and founder of the HECM Institute for Housing Wealth Studies and an adjunct professor of Retirement Income at The American College of Financial Services. He has helped tens of thousands of Advisors as well as more than 3,000 personal clients since the year 2000
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®

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