The information is long and technical but here are the nuts and bolts.
A Little History Up until very recently, it was very easy to get an FHA loan for a condo.
Either condos had sold in the development in the past, and had used FHA, and thus, so too could the new purchaser or anyone wishing to refinance.
Or no one in that community had used FHA, in which case, a "spot approval" was given for an individual unit whereby, HUD, or a direct endorsing lender, could approve an individual unit in a community, and thereafter, any unit in the development could also use FHA.
HUD has now changed its policy in regards to how this will work.
Rather than spot approving a community, HUD now requires every condo community to register with them.
Many condo communities haven't certified with HUD, or renewed their certification with HUD, for a variety of reasons.
Many condo communities know that based on several factors, that their community wouldn't be HUD certified.
So they've buried their heads in the sand, to the detriment of the individual owners, many of whom know nothing about the storm that is no longer looming, but is in fact on their doorstep.
HUD has even granted extensions for condo communities to get in the documentation they need to be FHA compliant.
Registration is absolutely crucial, as failure to register could mean an inability for FHA financing to be used in the purchase or refinance of units in the community.
At the end of the registration waiver period, FHA's condo requirements will revert back to those contained in ML 2009-46B, which outlines the criteria that condo projects must meet to receive FHA's approval and describes the condominium project approval process.
What this means: 1.
In most communities, no more than 30% of all units in the development will be eligible for FHA financing.
Including current owners.
If 30% or more of units in the community currently have FHA financing, no new FHA financing can be brought to the development.
Further, those in the development with existing FHA loans may be unable to refinance their loans.
This potentially could be the single biggest issue for some developments who have a significantly great number of units currently financed through FHA.
In new condo developments, 50% of the units in the development must be sold before FHA can be used to finance any of the purchases.
So if you're looking to get in on the "ground floor" of a new condo development you must use conventional financing until a minimum of 50% of the units are sold and the development receives FHA certification.
HUD will not allow more than 10% of the units to be owned by one investor to become certified.
The builder of the community is counted as an investor in some situation.
Thus, if a newer community were to stall out in sales, and the builder were to rent out more than 10% of the units, in order to 'stay above water' until the other units actually do sell, the entire project would become ineligible for FHA financing.
The community will need to be recertified every 2 years.
Recertification is not automatically granted, however.
HUD may look at factors including the condo association's reserve account, pending lawsuits, the foreclosure rate as a whole, the percentage of investor held property, among others, to determine whether to recertify a community.
Why is this bad: FHA financing is the primary financing people are using to purchase homes under $560,000 in Baltimore County.
(To see the loan limit in your county please click here ).
They use this financing because of the minimal amount necessary for a down payment as well as the lenient credit scores allowed.
If your development is not FHA compliant:
- If you own a condo and are trying to sell it and your community is not FHA approved it will be much more challenging to sell it as the buyer will need better credit and more money to close.
- If you're looking to buy a condo you need to make sure that the development is FHA compliant to use that financing and consider what happens to your resale opportunities if the development should not get recertified.
If you do not know point of fact that your condo association is certified for FHA, you should contact your association today.
If your association is not certified, it's your obligation to make sure that they become certified by the end of the year, or by whatever expiration date their deadline is set.
The nuts and bolts are this; it's going to be considerably easier to get a unit registered with HUD now, while HUD has slightly extended its deadlines, than it will be at any time thereafter.
That said, some extensions are only through the end of this year, so there isn't much time for dilly dally.
It's really imperative for all condo owners to contact their associations and try to make sure they are FHA certified.
Failure to do so will almost certainly affect the owner's bottom line when they try to sell their unit.