FHA Condo Approval
Understanding the FHA Condo Approval:
Unlike back in the mid 2000’s when bank didn’t focus on condo project approvals, many consumers are realizing that this factor can dramatically impact their transactions due to the more difficult lending requirements of today. Let me preface this article by saying that this is somewhat of a high level overview and I will have future pieces which go deeper into the nuts and bolts of specific condo project approvals.
How FHA Condo Approval Status Impacts Existing Owners:
Lets say for conversation’s sake that you purchased your condo unit five years ago and at that time the 30yr fixed interest rates were 6.000%. With interest rates at historic lows of 4.000% on a similar 30 year fixed mortgage, many homeowners would love to take advantage and refinance or purchase a new home at a low rate. Now wait just a minute – Before you can become approved for refinancing your existing mortgage, the lender will need to try and “approve” your condominium project, or in other words, check to see if all major aspects of the project adhere to the most current “Agency” guidelines. The agency in question is usually Fannie Mae. This is where things may get tough since many project may no longer qualify for Agency approval. Always check with your lender first to see if the condo project is approved.
How FHA Condo Approval Impacts Sellers:
Wouldn’t you agree that it seems there are more homes going up for sale right now than ever before? Everywhere we look, there seem to be more “For Sale” signs in windows. You may be asking, how do condo project approvals impact those property sellers? The Answer is this: If the original developer and/or the current home owner’s association never bothered with (the now essential) condo project approvals, how are any new potential buyers going to be able to purchase their property? The fact of the matter is that the condo project will need to become “approved” before lenders can provide financing to new buyers. The first question on every home buyer’s list should be whether the condo project is “approved”. If half of all buyers are using FHA(HUD) mortgages now, half of all potential buyers would be ineligible for financing if only the FannieMae approval is in place instead of both Fannie and HUD. As a rule of thumb, if you are considering buying, selling, or even just refinancing, first investigate whether the condo project approvals currently in place. If the subject property’s Home Owner’s Association say they don’t have condo project approvals, or the condo project approvals are expired, then your next call should be to a qualified lender or consultant who can help you get the project approved. There are a select few specialists out there who will even do these for free as long as they get your business in regard to the mortgage. Always have your condo project approvals done before your property is listed for sale and this will really improve your likelihood of selling the home, and will also help set apart your property from the crowd.
FHA Condo Approval and How It Can Negatively Impact Buyers:
Imagine your dream property downtown close to the nightlife, lakefront, and is located in the very best neighborhood. I bet the last thing you’re thinking about is whether those buildings have up to date condo project approvals, right? Once you discover the project is not eligible for financing, you may be very disappointed. Some projects may no longer be eligible for financing since lending guidelines have become so much tougher these days. As recently as 2005, on condo conversions and newly built projects, you didn’t need as much as a single unit sold before regular Fannie/Freddie insured closings could begin. Back in the “good old days”, condo project approvals used to be issued by the banks before so much as a single unit was closed, putting all of the responsibility of the success of the project with the builder. Before the first actual closing can take place these days, at least 51% of the total units in the subject phase must be sold/contracted. How? you might be wondering? This means a highrise must have 101 out of 200 total units under contract to real individual buyers before the actual settlements can begin. Some strategies exist among developers to get around these guidelines, including “phasing” of floors in the building but that is generally only allowed on low-rise projects. Prior to the 51% “pre-sale” threshold being met, a select few local banks may step up and fund private mortgages to help cover the gap between 0% sold and the Fannierequired 51% sold. However, these portfolio loans usually have less favorable terms, are ARM’s (adjustable rate mortgages), and usually have higher interest rates than their Conventional loan counterparts. HUD has recently stepped up and lowered the presale requirement on new construction condos (and condo conversions) form 51% down to just 30% resulting in closings being able to start sooner. Unfortunately, I have not seen a whole lot of positive results from this enhancement. Its best to save yourself a lot of time and headaches by researching the building’s condo project approvals prior to putting an offer on any unit.
Author “Joe Mortgage” is a condo project approval expert who is owner of hotratequote.com and is committed to bringing readers relevant and important information. Find out more at the following link for a free consultation on how to obtain FHA condo approval.