Condo Developments Must Reapply for FHA-Insured LoansJanuary 2012 – Articles In the Zone
Following the economic collapse of 2008, many aspects of the home financing system have significantly changed. Whereas it was once relatively simple for a condominium developer to qualify a potential buyer with excellent credit, changes to down deposit requirements have made it a more challenging proposition. Previously, when the condo buyer could not place 20 percent down, options had existed through private mortgage insurance companies to help bridge the difference. However, those past options no longer exist.
Alternatively, if a condominium development is approved by the Federal Housing Administration, potential condo buyers can obtain FHA-insured loans that include lower down deposit requirements, thereby facilitating the sale of condo units.
FHA guidelines state, “To be eligible for FHA mortgage insurance, the project must have been declared and exists in full compliance with applicable state law requirements of the jurisdiction in which the condominium project is located and with all other applicable laws and regulations.”
Rules to the FHA-approval process for condominium developments have been changed. The possibility of spot loan approval for individual units was eliminated in 2010 in favor of project-wide approval. And, the FHA now requires FHA-approved condominium developments to seek recertification every two years to maintain FHA-insured financing. That process must begin six months prior to the current approval’s expiration.
Current condominium developers and associations can visit the HUD web site to determine whether their communities are currently FHA-approved projects.
Failure to recertify with FHA within the deadline will result in the developer losing its FHA-insured lending status and reverting to more stringent lending standards. While the community can reapply, such new applications will be subjected to a longer and more detailed review versus simply extending a condominium’s existing qualifications.
For more information, please contact Carrie B. Nase.