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FHA APPROVAL REQUIRED FOR CONDOMINIUM LOANS
The Federal Housing Administration (FHA) no longer permits "spot loans" which allowed borrowers to qualify a condominium for FHA-insured loans on an individual basis. Now the entire condominium must obtain FHA approval in order for individual condominium units to be financed with an FHA-insured loan.
All FHA approvals obtained prior to October 2008 were set to expire on December 7, 2010. The expiration date has been extended on a rolling basis through September 30, 2011, depending on when a condominium previously received FHA approval.
Benefits of FHA Approval
A condominium which has the FHA approval benefits by enabling owners to re-finance to an FHA loan and by making condominium units available to more potential purchasers. Additionally, the purchasers may find an FHA-approved condominium preferable since the condominium has met FHA standards for financial stability.
Over 50 percent of first-time homebuyers now use FHA loans. FHA loans offer borrowers lower down payments, lower closing costs, and easier credit qualifications than conventional loans. The FHA loan limit of $729,750 in the Washington metro area and $560,000 in the Baltimore metro area.
The popularity of FHA-insured loans has increased significantly in the past few years. FHA-insured loans were less than 2 percent of all residential loans in 2006 and now account for nearly 40 percent.
New FHA initiatives for refinanced loans and reverse mortgages may further increase demand for FHA-insured condo loans.
FHA Approval Standards
A condominium association can apply to the FHA directly to become an FHA-approved condominium. The requirements for a condominium to qualify for FHA loans include:
No more than 15 percent of the units can be in arrears in payment of condominium assessments for more than 30 days;
At least 50 percent of the condominium units must be owner occupied;
No more than 10 percent of the units may be owned by one investor
At least 10 percent of the annual budget must be for funding replacement reserves for capital expenditures and deferred maintenance, or there must be .a reserve study within the past 12 months to assess the financial stability of the condominium.
The FHA will also consider the special assessment and litigation history of the condominium.
Re-certification Requirement
Any FHA approval obtained prior to October 2008 will expire on a rolling basis from December 31, 2010 to September 30, 2011. The expiration date for each condominium depends on when the condominium previously received its FHA approval. To remain eligible for FHA loans, such condominiums must obtain re-certification under the new FHA requirements.
For condominiums which received FHA approval after October 1, 2008, recertification must be obtained within 2 years after the initial approval.
New FHA Loan Initiatives
Two new FHA loan initiatives may further increase demand for FHA-insured condo loans. Beginning in September 2010. the FHA Short Refinance program allows owners who are current on their mortgage to refinance an existing mortgage which which is more than the value of the property. The existing lender must agree to write-off at least 10 percent of the mortgage debt, the new FHA loan can be up to 97.5 percent of the property value and the new combined first and second mortgages can be up to 115 percent of the property value.
The FHA in October 2010 began offering a new version of reverse mortgages - also known as Home Equity Conversion Mortgages (HECM) - with lower up front fees and lower loan limits. A reverse mortgage allows a borrower age 62 and older to obtain funds with no repayment required until the borrower dies, leases the home or sells the property. At that time, if the balance due on the loan exceeds the value of the home, FHA insurance pays the difference.
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