It sounds simple. If a condo meets FHA approval, the people who want to buy a unit in the condominium are eligible to apply for an FHA mortgage. If it isn’t approved, they can’t.
But if you saw the nearly 100 page-document the government puts out for the requirements it takes to get a condo approved, that whole notion of simplicity goes out the door. The document talks about the type and size of condos and what is acceptable procedures and documentation needed to get it approved. For the normal seller and buyer, it makes no sense.
But there are companies out there who know the ins and outs of getting condos approved with FHA.
For Natalie Stewart, it’s her profession to go through all those requirements and amendments to help clients get their condos approved. She has built a business around the complexity of this issue.
As president of the FHA Review in Huntington Beach, Calif., she works as a third party submission service that specializes in the FHA & VA condo approval process. She and her team work directly with HUD and the VA to get condominium communities approved for financing. They work with property managers, realtors, lenders, homeowners and boards of directors across the country.
“Most communities that were given FHA condo approval certification had it revoked sometime in 2011. With the fallout of real estate in general in 2008, the FHA market share of condo mortgages and mortgage insurance shot way up,” she says. “It was hard to get any conventional financing back then, so everyone was doing FHA.”
To protect itself and buyers, FHA created new guidelines. Prior to 2011, the condo approval never expired.
“It’s kind of like your birth certificate. If all of a sudden the government said it has expired, many people wouldn’t know what to do next,” Stewart says. “That’s what happened to condo owners and condo associations. The new rules for it had never had to be dealt with before. They didn’t know what to do.”
An FHA condo approval can be a big deal to a lot of people involved.
To the borrower who doesn’t have a lot of extra cash hanging around and doesn’t have such a stellar credit history, it means they can get an FHA mortgage that only requires 3.5 percent down. They don’t have to rent anymore.
“To the seller, it opens up to about 70 percent more buyers,” she says. “If you are in a first-time homebuyer areas and not FHA certified, you have limited yourself to 30 percent of the people that can purchase it. Your bargaining power is way low. If you are FHA approved, you can go into multiple offers, and it will be a lot easier to sell.”
In short, FHA condo approval is good for buyers and sellers.
“FHA certification is also necessary for reverse mortgages. As a financial planning tool, it’s good to know it is FHA certified or you could be stuck in your home and can’t get a reverse mortgage,” she explains.
The FHA certification was written to help the buyer, too, Stewart says.
“They don’t want a first-time buyer to walk into a condo association that is mismanaged,” she adds.
So, the certification verifies that things are being handled well. If you bought a condo, you would want someone to look at the financials, and that’s what the FHA approval does, she says.
Stewart explains that the FHA approval can take more than a month in some areas of the country. In California, she can see the approval come in a week or so. The approval lasts for two years.
Getting a mortgage for a condo can be a little more complicated than some people believe. And it was really tough to get one during the housing downturn.
But lenders are easing up a bit. In fact, you can get almost any kind of loan out there for a condo – FHA, USDA, VA, Fannie Mae and Freddie Mac. But the condo project must meet specific requirements for each of these loans to go through – meaning the lender may not take on that liability.
For instance, to get a Fannie Mae mortgage for a condo, the condo also needs to be on a list of approved buildings or developments. The rules include such things as commercial space takes up no more than 25 percent of the building’s footage and at least 10 percent of its association fees are deposited in reserves.
“Condos in some areas aren’t for first time homebuyers. People in Florida purchase a condo as their last home purchase,” Stewart says, speaking of the popularity of condos among retirees.
And some of those condos are quite expensive, on the beach with lots of amenities and high home association fees. Some people are financially able to pay cash or put down hefty down payments before buying a condo. Condo approvals aren’t necessarily needed in those high price brackets.