Posts Tagged ‘FHA approved condos’

FHA still looking to revise condo guidelines

June 13, 2019

A post earlier this year on The Mortgage Blog detailed some of the potential changes coming from the Federal Housing Administration for using FHA loans when purchasing condos. As with most things involving the government, they still haven’t finalized the details, but the final product is coming more into focus.

The FHA Commissioner stated the agency is currently working to revise its condominium approval rules and that he expects a final rule to be announced soon. These changes on condos are paramount has he called condos a “mainstay of affordable housing” for seniors citizens and first-time buyers.

With that in mind, here are some of the proposed changes:

  • allow owner-occupancy determinations on a case-by-case basis.
  • allow up to 45% of commercial space in a building without documentation.
  • increase the approval period from two years to five years (this would be amazing since condo complexes are seemingly always in a “get approved with FHA mode” since they only last two years).
  • still the possibility of allowing for spot approvals.

The goal for FHA loans and condos is the become more flexible, less prescriptive and more reflective of the current market than existing guidelines.

While these changes will be welcome, it is hard to get too excited. The FHA issued proposed changes to its condo rules in 2016 that promised to lift a number of restrictions and streamline the certification process, but it has yet to issue a final rule. 

If these can go into effect, it would be perfect for buyers with lower down payments and/or below average credit scores. While one can qualify to buy condo with 3% down using a conventional loan, the rate for someone with below average credit scores is 1% or more higher than doing an FHA loan. This would make condos more affordable to more buyers.

Looking to buy a condo around the Atlanta BeltLine? Maybe a live/work/play area with condos over businesses? Or perhaps just a good old fashioned high rise condo complex? If you are looking to buy a condo in Georgia, contact me today. We’ll get you ready to move into your new home in no time at all!

Potential new rules for condos with FHA loans

March 12, 2019

While potential condo buyers aren’t on pins and needles waiting to hear from HUD like we would be for who wins an election, still, buyers would love to know the direction HUD will go with FHA loans and condos. Current loan guidelines for buying condos with FHA loans are tough. The condominium project must be pre-approved by HUD to use an FHA loan. Then during the loan process, the condo project is re-certified; meaning, the criteria needed to get pre-approved is double checked to make sure the condo is still within the guidelines for its pre-approval.

Basically, buying a condo with an FHA loan is a lot of work. The condo homeowner association (HOA) must go through the hoops to get the complex approved for an FHA loan. Most HOAs don’t want to deal with the burden. Then repeat the process for the loan itself – twice the work for the same payout. Hopefully this will change soon.

A proposal was made a few years ago to HUD that would open up the number of condo complexes eligible to use FHA loans. The loosening of guidelines would also reinstitute spot approvals (similar to what conventional loans do for condos). This makes buying condos WAY easier with FHA loans.

This change will benefit home buyers with average to below average credit making a smaller down payment. Currently, almost all condos are purchased using conventional loans. While someone can qualify for a conventional loan with a credit score of 620+, the mortgage rate and monthly private mortgage insurance rates (for loans with PMI) are significantly higher than an FHA loan. The difference is big – easily over a half a point higher in rate and almost double the monthly PMI (depending on the down payment being made). Home buyers with average to below average credit could be in a position soon to save a couple thousand dollars annually.

Seriously HUD…. What’s the latest?

Looking to buy a condo in Georgia? One program we could use instead of an FHA loan is the Fannie Mae HomeReady loan. This has some advantages over a normal conventional loan that helps those making a minimum down payment on a home purchase. Contact me today, and we’ll see if you qualify for HomeReady whether buying a condo or not.

Non Warrantable Condos

October 10, 2012

Financing condos can be tricky in the current lending environment. You may hear the term “non warrantable.” What is a non warrantable condo? Basically, it is a condo that cannot be sold to Fannie Mae or Freddie Mac. If this is the case, it is also not likely to be approved by FHA.

So… if you are looking to buy a condo and don’t want to get too far in the process only to learn that the condo complex cannot get approved for a loan, how should you start this process?

After you’ve been preapproved by your loan officer, be sure to let them know if you are looking to buy a condo or a town home. From my previous posts, sometimes a home may look like a town home, but legally be a condo. Looks can be deceiving. Your loan officer should be able to help determine if a property is legally a condo if you can provide the address and name of the complex.

If it is determined to be a condo, a condo questionnaire will need to be completed. These questionnaires usually have two dozen (or more) questions on them. The make or break questions usually come down to:

  1. How many units are set aside for commercial space? Fannie Mae and Freddie Mac only allow for up to 20% of the units to be used for commercial space. If more than 20%,  the condo community probably will not be approved.
  2. Does any one person or corporation own more than 10% of the total units? If more than 10%, the condo community probably will not be approved.
  3. Are more than 15% of the homeowners delinquent on their monthly HOA fees? If more than 15%,  the condo community probably will not be approved.
  4. Is at least 10% of the budget being contributed to reserves? If less than 10%,  the condo community probably will not be approved.

If you find out this is the case on the condo community, then you will need to find a lender that will finance non warrantable condos. Sadly, at this time, I cannot finance non warrantable condos. I will certainly let my readers know if that changes.

Are you in a position where you don’t know if a condo is or is NOT warrantable? If the condo is in the state of Georgia, contact me. We can look and see if it is warrantable and map out the best way to proceed toward buying the unit.


Looks can be deceiving

April 10, 2012

Things are not always what they appear to be. For example, do you see two faces OR a candlestick in the picture below?

What do you see?

The same can be said for determining if a home is a condo. If someone lives above you, below you, and to each side of you, then it is a pretty safe guess that property is a condo.

On the other hand, a home could look like a townhome, be two stories like a townhome, only have 2-4 units total in the building like a townhome, but still be legally a condo.

Why is this important? As mentioned in my previous post, getting financing for condos is more adventurous today than it has been in the past. If you are looking to buy a townhome, when you get ready to make an offer, give your loan officer three pieces of information.

  • First, the property address.
  • Second, the amount of the offer.
  • Third, the name of the townhome community.

Just because a home you want to buy looks like a townhome doesn’t mean that it is a townhome. It could be legally described as a condominium, and therefore subject to condo guidelines for loan approval.

If you want to buy a townhome, prior to ordering an appraisal or having the property inspected, ask your loan officer to see if the property is legally described as a condominium. If it is legally a condo, the guidelines for loan approval are much different. If it is not legally a condo, then it is much easier to get financing for the property as the home is treated as a single family residence.

If the home is in the state of Georgia, I can help you get started with the prequalification process AND help you ensure the property is a townhome and not a condo.

Hurdles to buying a condo

April 3, 2012

If you thought selling a condo is hard in metro Atlanta (or other parts of the U.S.) because of the number of condos on the market, well is getting even harder. Financing a condo is becoming more and more difficult. There are more hurdles to jump in order to be qualified to buy a condo regardless of whether or not you are using an FHA or conventional mortgage.

The down payment (at least in the state of Georgia) isn’t the issue. You can buy a condo with 5% down on a conventional loan or 3.5% down on an FHA loan. The problem is the condominium communities themselves. Let me explain.

If you are buying a condo, lenders would prefer the condominium community to be pre-approved by Fannie Mae or FHA. Do you know how many condo complexes are approved by Fannie Mae right now in the state of Georgia? Take a stab at it… how many would you think would be approved in the entire state?… 11. That is right, only 11 complexes. Don’t believe me? Take a look at this list from Fannie Mae’s website. I pulled this list at the writing of this post.

That isn’t for a section of Atlanta, or the city of Atlanta, but the entire state of Georgia. What does that mean? Basically it means Fannie Mae isn’t a big fan of funding loans for condos right now 😦

If you are looking to buy a condo using a conventional loan, ask your loan officer if their company uses “CPM Review”. This is Condo Project Manager review, which will expedite the process of applying for a loan on a condo. If the lender doesn’t offer CPM, and not all of them do, then find a lender that does use it. As a mortgage broker, I have lenders that do offer CPM Review for condos.

It isn’t much easier using an FHA loan. Before 2012, if a condo was FHA approved, you were good to go with a loan in that complex. Things are different now. Starting this year, an FHA approved condo means you are only half way there.

While FHA approves condominium communities, the occupancy rate is reaffirmed at the time of loan application. That means a condo questionnaire must be completed, and the owner occupancy rate must be above FHA minimum requirements. Gone are the days of a two year approval where FHA doesn’t re-evaluate a complex until it is time for renewal.

Looking to buy a condo? Determining if the condominium is warrantable (able to get a loan) is just as important as the home inspection and appraisal process. You should ensure the condo you are looking to buy can get financing early in the process. Ask your loan officer specific questions about whether or not the condo is warrantable. If not, then I wouldn’t proceed with the loan process and pay for an appraisal or home inspection.

How do you help your loan officer determine if the condo is warrantable? First, provide the property address and name of the condominium community. If listed on FHA or Fannie Mae’s pre-approved list, you are halfway there. Next, get a condo questionnaire completed and reviewed by the lender. Once you know you can get a loan to buy the condo, then make the offer, inspect the home, and order the appraisal.

With the uncertainty in obtaining financing on condos these days, it is imperative to work with a loan officer who is aware of the unique challenges presented by a condo. If you are looking to buy a condo in Georgia, I can help you get started!