FHA Certification for Condominium Developments
Weigh the advantages of getting FHA certified
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The Tress Realty Group works with condominium communities to certify them with the Federal Housing Authority (FHA). This certification allows condo unit owners to finance the purchase of their homes with an FHA loan.
Below are the Pro’s & Con’s of being an FHA certified community as well as some Frequently Asked Questions for determining if certification is worth the time and expense. Please call us at (732) 515-9696 to discuss getting FHA certified or email us at [email protected] so we can answer all of your questions. This page is designed to provide FHA Loan Certification information for condo development board members, and information for individuals buyers of condos. Condo board members should contact Natalie Stewart, President of FHA Review, Inc. ([email protected]) for information on FHA certification. Home buyers should contact the Tress Team at Keller Williams for more information on qualifying for an FHA loan ([email protected]).
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The article “Pros, Cons, and Misconceptions of FHA Condo Approval” and "FAQs" was written by and used with permission by Natalie Stewart, President, FHA Review, INC.
FHA Review is a Third Party Submission service specializing in both the FHA and VA Condominium Certification processes. Please contact [email protected] or visit www.FHAReview.com for more information on their service. |
The Pro's and Con's of FHA Certification for a Condo Development
The Pro'sFHA condo approval dramatically increases the pool of potential buyers
Statistics show that approximately 60% of new homebuyers intend to use an FHA Loan. If your community does not have FHA condo approval, you potentially limit the buying pool to only 40% of homebuyers. Increased Home Value FHA approved Condos have a larger pool of prospective buyers, therefore increasing competition and demand for the product. This can result in higher purchase prices and an increase in market value. This can ultimately increase the value of all units throughout the community. Marketability Realtors are more likely to bring their clients FHA Approved communities. These units with FHA financing approvals are easier to sell and most often sell for higher prices than similar condo associations that are not approved. Fewer Renters in the Community Generally speaking, Buyers who use FHA loans are more likely to reside within the unit, and not rent it out. Conversely, communities without FHA approval most likely will attract buyers that can make large down payments for conventional financing. These buyers are usually investors who will rent out the property for a profit. Fiduciary Duty Board Members and Property Managers are expected to maintain property values in their communities. Several HOA attorneys advise that it is the fiduciary duty of the condo Board to apply for FHA condo approval to maintain or increase property values for residents. |
The Con'sAt this time, experts agree that there are no “cons” to being FHA Certified. However there are sever misconceptions about FHA Condo Approval. Remember, chances are, your community was certified when it was first developed and it may just need to be re-certified.
The FHA is a lender – FALSE The FHA provides mortgage insurance to banks, credit unions, and other lenders. In turn, these lenders make loans that meet insurance standards. If the loan defaults, the FHA reimburses the lenders for a portion. They do not “approve buyers.” This is still done by the lender/bank, just like conventional loans. To use an FHA Insured Mortgage, there is a minimum set of standards that must be met by a potential mortgagee. However, each lender enforces additional requirements based on their own best practice. These requirements include mortgage score, credit history, bankruptcy and foreclosure/short sale history, and employment verification. If we become FHA Certified, the FHA will have control over our community – FALSE The FHA will not have any “control” over the governing of the condo community. An FHA certified community has no obligation to maintain its certification, and the FHA does not monitor the association. When a condominium is placed on the FHA connection list, the FHA is simply certifying that the Association meets requirements set forth in the FHA Handbook. FHA Loans caused the housing crisis – FALSE No. The FHA does not lend money. It insures loans that meet their standards. Sub-prime loans, interest-only payment options, negative amortization loans, faulty appraisals, and limited underwriting are some of the causes of the past mortgage crisis. FHA Insured loans are a big part of how the housing market came back. The guidelines are too strict and its cost prohibitive – FALSE Well-managed and financially stable communities have no trouble becoming FHA approved. And if the development qualifies, Tress Realty and Movement Mortgage will pay all of the costs to get a development certified. |
FHA Loans are NOT for Low-Income Borrowers
Being FHA Certified will NOT bring in “low-income” buyers
FHA Condo approval is completely unrelated to affordable housing programs. The FHA can insure loans upwards of $800,000 in some areas, and since the recession, most American buyers are using FHA insured loans. This could be the trend for years to come.
The lower down payments of some FHA Loans will NOT cause more defaults and delinquencies
There are many different factors that come into play during a foreclosure. If down payments were the key to borrower default, banks and lenders would be able to predict all foreclosures. Many conventional lenders allow down payments equally as low as FHA.
And not all FHA borrowers put only 3.5% down. Some FHA borrowers need FHA loans for other reasons, and will put significantly larger amounts as a down payment. The lower down payment is only an option if your credit score is high enough. If a potential buyer has a lower credit score, the minimum down payment goes up to a minimum of 10%.
FHA Condo approval is completely unrelated to affordable housing programs. The FHA can insure loans upwards of $800,000 in some areas, and since the recession, most American buyers are using FHA insured loans. This could be the trend for years to come.
The lower down payments of some FHA Loans will NOT cause more defaults and delinquencies
There are many different factors that come into play during a foreclosure. If down payments were the key to borrower default, banks and lenders would be able to predict all foreclosures. Many conventional lenders allow down payments equally as low as FHA.
And not all FHA borrowers put only 3.5% down. Some FHA borrowers need FHA loans for other reasons, and will put significantly larger amounts as a down payment. The lower down payment is only an option if your credit score is high enough. If a potential buyer has a lower credit score, the minimum down payment goes up to a minimum of 10%.
Frequently Asked Questions (FAQ's) about FHA Certification
What is an FHA approved condo?
If a buyer is approved for an FHA loan, and wants to buy a condominium, the entire condominium complex must be approved by the FHA. In order for a condominium complex to become FHA approved, it must meet a strict set of guidelines determined by the Department of Housing and Urban Development (“HUD”). This includes being at least 50% owner occupied, but that’s just the tip of the iceberg. The condo complex must also meet many other standards – including financial stability, insurance requirements, reserve funding, leasing specifications and much more. FHA approval expires after a few years, and all condominiums must re-certify at that time to maintain approval.
What is FHA Certification for Condominiums?
FHA Certification is the method used by HUD to ensure that Condominium Complexes meet detailed criteria to ensure that they are financially stable and managed properly. HUD uses the certification process as a risk management tool to reduce the probability of foreclosures on FHA insured loans on condominiums. This new “FHA Approval Process” is a detailed review of the Condominium Projects legal documents, financials, and overall health of the community.
Is the Association legally obligated to become FHA Certified?
No. Currently there is no legal requirement for a Board of Directors to seek FHA Certification for their condo project, but it does fall within the fiduciary duty of Board to at least consider it. By ignoring the issue or deciding not to cooperate with the FHA Certification process, the Board is now becoming the decision maker on how owners can finance their units. This is seen by many as an overstep of power, and has resulted in litigation and many disgruntled owners. Boards should be very wary of standing in the way of FHA Certifications.
How long does the entire FHA approval process take?
The FHA condo approval process typically takes anywhere from 30 – 60 days, however this timeframe is completely dependent on each project and their particular situation.
Does FHA Certification require Board Approval?
No. The Board does not need to approve the process. However, issues may arise that require Board assistance. It could be something as simple as a signature. All current owners have the legal right to request all the documents required by the FHA to obtain certification. The current thought held by most industry professionals is that FHA Certification is a huge benefit to any Condominium project. Boards that refuse to allow approval are now taking it upon themselves to determine the financing options available to the owners.
Will the FHA Certification expire?
Yes. Condo communities will need to re-certify for FHA approval every few years. There is currently no difference in the “re-certification” process, however in the future the FHA is planning to streamline it.
Who is responsible for paying for FHA Condo Certification?
The Association is not legally obligated to pay for the Certifications. However, many Associations will cover the cost because it benefits the entire community. Tress Realty and Movement Mortgage will pay for all of the costs if the community qualifies.
How much does FHA Condo Approval cost?
The cost of FHA condo approval can cost several thousand dollars, but Tress Realty and Movement Mortgage is offering to pay for all of these costs if the community qualifies. For more information, call us at (732) 515-9696 or email us at [email protected].
If a buyer is approved for an FHA loan, and wants to buy a condominium, the entire condominium complex must be approved by the FHA. In order for a condominium complex to become FHA approved, it must meet a strict set of guidelines determined by the Department of Housing and Urban Development (“HUD”). This includes being at least 50% owner occupied, but that’s just the tip of the iceberg. The condo complex must also meet many other standards – including financial stability, insurance requirements, reserve funding, leasing specifications and much more. FHA approval expires after a few years, and all condominiums must re-certify at that time to maintain approval.
What is FHA Certification for Condominiums?
FHA Certification is the method used by HUD to ensure that Condominium Complexes meet detailed criteria to ensure that they are financially stable and managed properly. HUD uses the certification process as a risk management tool to reduce the probability of foreclosures on FHA insured loans on condominiums. This new “FHA Approval Process” is a detailed review of the Condominium Projects legal documents, financials, and overall health of the community.
Is the Association legally obligated to become FHA Certified?
No. Currently there is no legal requirement for a Board of Directors to seek FHA Certification for their condo project, but it does fall within the fiduciary duty of Board to at least consider it. By ignoring the issue or deciding not to cooperate with the FHA Certification process, the Board is now becoming the decision maker on how owners can finance their units. This is seen by many as an overstep of power, and has resulted in litigation and many disgruntled owners. Boards should be very wary of standing in the way of FHA Certifications.
How long does the entire FHA approval process take?
The FHA condo approval process typically takes anywhere from 30 – 60 days, however this timeframe is completely dependent on each project and their particular situation.
Does FHA Certification require Board Approval?
No. The Board does not need to approve the process. However, issues may arise that require Board assistance. It could be something as simple as a signature. All current owners have the legal right to request all the documents required by the FHA to obtain certification. The current thought held by most industry professionals is that FHA Certification is a huge benefit to any Condominium project. Boards that refuse to allow approval are now taking it upon themselves to determine the financing options available to the owners.
Will the FHA Certification expire?
Yes. Condo communities will need to re-certify for FHA approval every few years. There is currently no difference in the “re-certification” process, however in the future the FHA is planning to streamline it.
Who is responsible for paying for FHA Condo Certification?
The Association is not legally obligated to pay for the Certifications. However, many Associations will cover the cost because it benefits the entire community. Tress Realty and Movement Mortgage will pay for all of the costs if the community qualifies.
How much does FHA Condo Approval cost?
The cost of FHA condo approval can cost several thousand dollars, but Tress Realty and Movement Mortgage is offering to pay for all of these costs if the community qualifies. For more information, call us at (732) 515-9696 or email us at [email protected].