Is Your Condo FHA Approved?

FHA Extends Approval Procedures – New Mortgagee Letter Issued

The Federal Housing Administration (FHA) implemented a new approval process for condominium projects and insurance requirements for mortgages on individual units in November, 2009.  FHA also announced certain exceptions to its standard criteria.  Please note the following:

The November 2009 guidelines temporarily increased the number of permitted FHA insured loans in a particular project from 30% to 50%.  100% of the loans can be FHA insured if the project meets all of the basic condominium standards and the additional items: 

  • The project is 100 percent complete and construction has been completed for at least one year;
  • 100 percent of the units have been sold and no entity owns more than 10 percent of the units in the project (for projects with fewer than 10 units, single entity may own no more than 1 unit);
  • The budget includes a line item (10%) for funding replacement reserves for capital expenditures and deferred maintenance; 
  • Home owners are in control of the Association; and
  • At least 50 percent of the owners occupy the property.

Project Eligibility Requirements – The following requirements apply to all Condominium Project approvals:

Minimum number of units: Projects must consist of two or more units.
Insurance Coverage:  Adequate hazard and liability insurance and, when applicable, flood and fidelity insurance.
Right of First Refusal:  A right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act.
Commercial Space:  No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogenizes with residential use.
Investor Ownership: No more than 10 percent of the units may be owned by one investor. For condominium projects with ten or fewer units, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete.
Delinquent Home Owners Association (HOA) Dues: No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payments.
Owner-occupancy Ratios: At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units
FHA Concentration: From 30% to 50%, with exceptions available.
Budget Review:  This review must determine that the budget is adequate and:
• Includes allocations/line items to ensure sufficient funds are available to maintain and preserve all amenities and features unique to the condominium project;
• Provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and
• Provides adequate funding for insurance coverage and deductibles

In cases where the budget documents do not meet these standards, the mortgagee may request a reserve study to assess the financial stability of the project. The reserve study cannot be more than 12 months old. When reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed. 

FHA approvals expire according to the schedule published in Expiration of FHA/Fannie Mae Approvals: Will Your Condominium Units Qualify for Mortgage Financing?

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