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Should a Condo Become FHA Approved? – What Every Owner Must Know

Why Should a Condo Become FHA Approved?

I have heard this several times in the past couple of weeks and will answer it here as it pertains primarily to my home state of Pennsylvania and its immediate surrounding area.  (Although, this information can be used in many other states as well)

The majority of the condominiums in our area are in the $150,000 – $350,000 price range.  The buyers in this price range are typically first-time buyers and retirement-age buyers.  Let’s take them individually.

FHA’s Appeal

With the new FHA lending limit set at $625,500 and the credit and down payment requirements so favorable and relaxed, it is no wonder that FHA loans have now moved to become the primary choice of most buyers as well as those refinancing.  In some areas, as much as 70% of middle to upper income buyers are now using FHA.

First-Time Buyers

have only a couple of loan options to choose from that allow for low-money down and no-money down.  In Pennsylvania, they are FHA (3.5% down), CHFA (0% down) and USDA RD (0% down).  VA loans are also available but I wouldn’t categorize them as being primarily for first-time buyers.  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 November 2009, FHA and CHFA allowed for “spot approvals”.  Spot approvals were used to allow FHA and CHFA financing 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 and extremely good credit scores. (which most buyers don’t have)

How many first-time buyers have $10,000 – $25,000 to put down on 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 Condominium complex is ruling out the majority of first-time buyers.  So what, right?  Wrong. This could lead to increased marketing times as buyers are tougher to come by.  This could also lead to a decrease in the prices of the units in the complex because of the law of supply and demand.

Retirement-Age Buyers

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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.

However, where it does affect them in their ability to use the congressionally approved Reverse Mortgage for Condo Purchase as well as accessing a traditional Reverse Mortgage   The only conduit for reverse mortgages is FHA.  If the condo complex is not on HUD’s list, an FHA reverse mortgage cannot be obtained in the complex.

A Reverse Mortgage for Condo Purchase allows a Senior to finance the purchase of a Condo without having to spend all of their sales proceeds. This leaves them with a savings nest egg and the ability to remain faithful residents for the remainder of their retirement.  Let me give an example:

    • John and Mary (age 72) sell their home and have $200,000 in proceeds left over
    • They want to move into a $200,000 Condo (which IS FHA Approved)
    • The use a Reverse Mortgage for Condo Purchase to Finance $100,000 of the price
    • They need only to bring $1000,000 of their net proceeds to be able to move in.
    • They have now moved into a Condo without having a minimum FICO Credit score requirement, No Income Requirement, No Monthly Mortgage payment and $100,000 left over to use to enjoy their retirement.

Imagine being able to attract stable, quality residents without having to impact their lifestyle because of cash constraints. You have opened up an entirely new and desirable demographic to your community.

But not only Seniors who are looking to purchase in the development but FHA approval also allows current Senior residents to use the Reverse Mortgage to refinance their existing Condo in order to stay current with increasing expenses, emergencies and have some added enjoyment as well.  For Example:


    • Tom and Mary (age 72) have lived in their $200,000 condo for 20 years
    • However over the years, expenses have been stretched a bit as well as some recent assessments and gradually increasing fees.
    • They want to continue to stay but are not sure how to manage on a fixed income and pension.
    • However because their condo is FHA approved they can apply for a Reverse Mortgage.  This makes available to them $130,000 dollars.  With that they are able to make some much needed upgrades and modernization as well as to have a new nest egg to sustain them for the remainder of their retirements years in their own condo

The possibilities are endless for the Condo Development as well as the seniors who currently live there and the baby boomers (now turned 62) who want to move in but need a new financing tool to help them.

By becoming FHA approved you open up these doors and so many others.  The overall value and desirability of your development just increased.

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 literally hundreds of condo complexes in greater Philadelphia that are not FHA-approved but can be.  Because FHA allowed “spot approvals” there was no reason previously to become FHA-approved.  Now it is imperative as FHA and CHFA loans are in such a high demand.

I partner with groups that helps complexes to become HUD-approved and to maintain their approvals.  We will coordinate with the management companies and/or the homeowner’s associations to compile the paperwork that HUD needs and oversee the approval process.

The best part of all of this is that it will cost the condo association nothing! $0.  We bear all the costs of getting you approved.  All it takes is for the association to pull together a few items (that most already have on site) and getting them to us and we do the rest.

It usually takes just a few weeks to position your for years of sustainable revenue and stable residents.

For more information call 215-732-0814

Related Articles

Should Condo Owners Press Their Boards to Seek FHA Approval? – Dr. Jack Guttentag

7 Benefits of FHA Condo Approval – Pro’s, Con’s and Common Misconceptions

Should a Condo Become FHA Approved? – What Every Owner Must Know

7 Things You Should Know About FHA Loans – And How It Will Affect Your Home Values!

FHA Condo Approval Requirements: Sellers and Buyers Beware – Article Repost

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 7 Things All You Should Know About FHA Loans

1. FHA Loans Are Not Only For Lower-Income Borrowers. FHA loans are available to everyone. In fact, even Bill Gates can get one. There is no maximum income restriction associated with FHA loans. Borrowers do need to substantiate income and assets by submitting proper documentation. This requirement ensures that borrowers are well-vetted and truly able to afford their future homes.

2. FHA Loans Are Not Only For First-Time Buyers. Many people believe FHA loans are available only to first-time homebuyers. This is not the case. Whether borrowers are making their first home purchase or their fifth, they can look to FHA loans as a home financing option.

3. FHA Loans Are Not Just Small Loans; In Fact, Loan Amounts Can Be As High As Almost $800,000. The government recently raised the maximum loan amount from its original cap of $362,790 to $793,750 as a way to help stabilize the housing market. The amount a buyer can borrow varies from county to county.

4. FHA Loans Are Not Affiliated With The Section 8 Housing Program. While both programs are administered by the U.S. Department of Housing and Urban Development (HUD), FHA loans have nothing to do with low-income subsidized housing. FHA loans are simply mortgages insured by FHA. This insurance provided by the federal government allows lenders to lend more freely by assuring them that they will be repaid in the event of default. Most traditional lenders, including Wells Fargo & Co., Bank of America and Citigroup are able to provide FHA loans to their customers.

5. FHA Loans Are Often More Affordable Than Conventional Loans. While FHA loans typically offer the same interest rates as other loans, borrowers benefit from a much lower down payment of as low as 3.5 percent.

6. FHA-Approved Condo Developments Are More Desirable To Buyers. With 87 percent of home buyers indicating that they plan to use FHA loans, condo associations that are not FHA approved are missing out on a significant pool of prospective buyers. Under rules in place since February 2010, an entire condominium development must now apply to HUD and be granted FHA approval before a buyer can purchase a unit in an association with an FHA loan or before an existing unit owner can refinance into an FHA loan.

Due to the general unwillingness of today’s lenders to extend credit with respect to conventional loans, many borrowers find that FHA is their best bet. Lenders don’t mind lending when the federal government (FHA) assures them of repayment.

Homeowners associations (HOAs) should note that although FHA-insured mortgages might be easier to obtain, they are not “risky” loans, due in large part to the strict “full documentation” requirements placed on borrowers.

7. FHA Loans Are Assumable*. In addition to lower down-payment and credit-qualifying requirements as compared to conventional loans, FHA loans are assumable. This means that when a seller with an FHA loan sells his or her property, the loan and its financing terms (interest rate) can be transferred to the new buyer. This unique feature will certainly make a property more valuable in times of rising interest rates.  *FHA Insured Reverse Mortgages are not assumable

 

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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