FHA buyers blocked from many condos

Many condo communities in the state have lost their FHA certification, something buyers and sellers don’t realize until a contract is blocked. So if you have clients that are in any way connected with condo or townhouse communities — owners, managers, potential buyers — they need to be aware of this: FHA revoked its certification of every condo earlier this year. If the management hasn’t reapplied, units can’t be purchased with an FHA loan.

It used to be relatively easy for a condo complex (or “project” in FHA parlance) to get certified by the FHA, meaning the agency would loan money to qualified buyers of units there. But with the burst of the housing bubble, FHA realized that a lot of delinquent and foreclosed properties were condos. So it tightened its rules.

Essentially, it ‘de-certified’ every condo and townhome and required each one to re-apply for certification, giving plenty of notice about what was going to happen. And in May it did just that.

Some condo associations and management were on the ball and immediately applied for recertification. But many — for whatever reason — did not. Some may have not realized they had to get recertified. Others may have had officers concerned about liability issues if they signed certification documents. And of course some condos simply don’t meet the FHA’s requirements.

Whatever the reason, the end result is that buyers are ineligible for FHA financing to buy a unit there — something many sellers don’t discover until late in the process when they learn that their pool of prospective buyers has shrunk considerably.

And because the certification process can take months, deals fall through — or never get off the ground in the first place. Fewer buyers means prices will have to go down

Bottom line: We need to get the word out to condo owners, condo associations, property managers, and anyone who is involved in buying or selling a condo or townhome: Find out whether your condo community is FHA certified.

It’s incredibly easy to do. Just go to VARealtor.com/condocheck. Enter a ZIP Code or just the city and state and you’ll get a listing of every condo association there. If the rightmost column says “expired,” it’s not FHA certified. Then it’s time to get in touch with any affected clients, as well as the condo board or association. There’s a good chance they’re not even aware of the issue.

Requirements for FHA certification

  • For a condo complex (or “project”) to have its units qualify for FHA loans, it must meet the following requirements:
  • Insurance Coverage: Projects must be covered by hazard and liability insurance and, when applicable, flood and fidelity insurance.
  • Commercial Space: No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes.
  • Investor Ownership: No more than 10 percent of the units may be owned by one investor. This limitation also applies to developers/builders that subsequently rent vacant and unsold units.
  • 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.
  • Pre-sales: At least 50 percent of the total units must be sold prior to endorsement of a mortgage on any unit.
  • 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: No more than 30 percent of the total units can be encumbered with FHA insurance.
  • Budget Review: The homeowners’ association budget must include sufficient funds to “maintain and preserve all amenities and features unique to the condominium project” as well as insurance coverage.

For the details, click here for a  HUD PDF.

About Andrew Kantor

Andrew is VAR's editor and information manager, and -- lessee now -- a former reporter for the Roanoke Times, former technology columnist for USA Today, and a former magazine editor for a bunch of places. He hails from New York with stops in Connecticut, New Jersey, Cincinnati, Columbus, and Roanoke.
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