Loan Modification

Condo Owners Should Get FHA Approval to Increase Value

By Gina Pogol

Condos in many real estate markets have taken a beating lately. Conventional lenders charge more to finance them, mortgage insurers shun them, and as of February 1st, FHA no longer allows “spot” approvals of individual units. This means that selling a unit to anyone with less than 20% down is a challenge. Which creates a bigger supply, a smaller demand, and perhaps further price erosion. Bummer.

So how can a condo seller ensure that buyers with less than 20% down have a reasonable crack at obtaining financing? How can an HOA help support its property values? By getting on the list of FHA-approved condominium projects. Project approval is called HUD Review and Approval Process, or HRAP. The condo must meet HUD’s requirements including but not limited to the following:

1.  At least 50% of the units must be owner-occupied.

2. No single entity or person can own more than 10% of the units.

3. At least 85% of the units must be current (no more than 30 days delinquent) on their HOA dues.

4. For new construction, at least 50% of the units must be pre-sold.

5. No more than 30% of the units can be financed with FHA mortgages.If 30% of your owners already have FHA loans (issued when spot approvals of individuals were still being granted), FHA will not issue any more case numbers for loans in your complex.

6. Budget must be deemed adequate by HUD.

7. HOA must have reserves of at least 10% of the budget. If there isn’t an actual budget, Fannie Mae form 1073a, Analysis of Annual Income and Expenses ? Operating Budget may be completed and submitted for review.

8. Adequate hazard, liability, flood (where applicable) and (for projects with 20 or more units) fidelity insurance or bond.

9. Commercial space cannot exceed 25%.

The following documentation must be submitted with an approval package to the applicable HUD Home Ownership Center.

1. All condo legal documents.

2. Platte Map / Legal Description

3. CC and Rs

4. Bylaws

5. Articles of Incorporation

6. Site Plans

7. Transfer of Control

8. Budget

9. Management Agreement (when applicable)

10. FEMA Flood Map

11. Outstanding / Pending Litigation Analysis

12. Pending Special Assessment Analysis

Some real estate experts recommend having a lawyer or property manager experienced dealing with HUD condo approvals file the paperwork.

Full post as published by FHA Mortgage Guide on May 20, 2010 (boomark / email).