Everyone knows how confusing governmental processes can get. The Federal Housing Administration is no exception. If you are considering FHA condo approval for your community, here are some of the things you ought to know.
Common Questions About FHA Condo Approval Answered
There has been a great deal of debate about how to successfully afford housing for the younger generations in the United States that have larger financial strains due to excessive debt or limited credit history. The federal government has made an effort to create a policy that enables less-established prospective buyers to have the potential to successfully obtain equity in a property of their own. The Federal Housing Administration has created avenues where qualifying residential communities with FHA approval can obtain more accessible mortgages.
One of the more complicated processes is receiving FHA condo approval due to the strict requirements involved in the approval process. Many communities attempt to decide whether obtaining Federal Housing Administration approval is the right choice for their particular community to increase their overall occupancy of dues-paying residents. There are several benefits to community associations that decide to obtain FHA approval. That said, there are many pitfalls during the process that HOAs should attempt to avoid. If your community is considering FHA condo approval, review the information below:
1. What Is FHA Approval?
The FHA creates several incentive programs located nationwide to make housing more accessible to individuals that may not necessarily have sufficient capital to pay a normal 20% down payment on any property that they are purchasing. Federal Housing Administration properties have received a particular focus in recent years due to the multitude of graduates with student loans that are having difficulty both affording and qualifying for traditional mortgages.
FHA loans are available to individuals that are only able to make a 3.5% down payment on a property they want to purchase, so long as they have a credit score of 580 or higher. While these loans do require a mortgage insurance fee included in the mortgage’s calculation, they do present an easier path to homeownership.
While FHA loans are very appealing, they have an important catch — only certain buildings or communities can use them. Also, FHA loans have mortgage loan limits. This amount depends on the location of the community within the United States.
Currently, prospective FHA loan clients have limited options for FHA approved communities. For communities that are looking to increase their occupancy while providing more ownership opportunities to first time buyers or individuals looking for a lower down payment, obtaining FHA approval is a wise decision.
2. Is It Difficult to Obtain FHA Approval?
Obtaining FHA approval can be quite complex. When the FHA is reviewing a condominium association’s application for certification, several criteria can cause a community to be immediately rejected. One common reason is the ratio of owners to renter’s owner-occupancy ratios.
One of the most important qualifications for a community to be FHA approved is to have owners that intend to reside in the property purchased with FHA financing as their primary residence. For communities that have many investors renting to tenants, achieving the required ratio can prove difficult. This is why many communities are not successful in obtaining their FHA approval.
3. How Does a Condo Get FHA Approved?
One of the FHA’s primary objectives is to back all of the mortgages that it issues. This is precisely why they want to analyze data to judge the risk of the mortgage they are issuing. The ratio of renters to owner-occupants is one of the key sets of data that they analyze. A huge pre-requisite to FHA approval is to have at least 50% of the units occupied by owners.
Depending on the case, there are exceptions to this 50% standard. Some can get away with 35% occupancy. If the owner-occupancy is less than 50%, but not lower than 35%, the association still has the possibility of obtaining FHA approval. However, the FHA will need supporting documents to approve the community’s application.
The additional FHA approval requirements for condos has the potential to consist of proof that:
- 20% of the annual budget goes into the reserves.
- The number of units 60 days late in their HOA dues must not exceed 10% of the total.
- The association must submit 3 years’ worth of admissible financial documents.
What is important to remember is that owner-occupancy ratios that are below 50% are not impossible to deal with; however, they do present additional bureaucratic approvals to obtain FHA approval.
4. Are There Any Potential Exceptions to the Owner-Occupancy Standard?
Traditionally, FHA loans are only given to individuals that want to occupy the property. While this is still the standard, some states prove exceptions for parents co-borrowing with their child or close family member on a mortgage.
While these mortgages can be more complex, they do allow the possibility of a child still meeting the owner-occupancy standard if their parent with more established credit is guaranteeing their mortgages. This exception wishes to give more individuals access to homeownership in spit of excessive student loan debt, little employment history, or little established credit.
5. How Long Does It Take to Get FHA Approval?
Upon completion of an FHA approval application, approval can take up to 30 days. Your HOA needs to be proactive in attempting to obtain FHA approval because if you have buyers that are attempting to use FHA financing for their sale and they have to wait at least 30 days, this could result in them choosing another community that already has their FHA filing in place. It is better to be proactive with your FHA application to avoid unnecessary delays or lost sales.
6. How Do I Know If My Condo Is FHA Approved?
Naturally, people tend to buy an FHA-approved condo over one that is not approved. To find out if your condo is FHA approved, simply head to the Department of Housing and Urban Development (HUD) website. There, you will find a list of FHA-approved condos in your area.
7. What Are the Benefits of Obtaining FHA Approval?
Even though the process to obtain FHA approval is tedious, the approval does last for at least two years. What your HOAs objective should be is to attempt to fill as many of your units as possible. This is important because your HOA can use more fees to effectively run and benefit the community. If buyers have to go through too many financial hurdles just to join your community, it can limit the financial resources available to you.
FHA approvals last for two years, which is why they are worthwhile to increase sales for at least two years. HOAs that elect to file for FHA approval will see an increase in occupancy. In addition, they will see increased compliance with community regulations. This is because owners have a more vested interest in complying with community norms than renters. Owners do this to maintain a positive relationship with the HOA for a longer duration of time.
8. What If a Condo Is Not FHA Approved?
FHA condo approval is not mandatory. However, it does give your property a certain edge. A big reason why a condo is not FHA approved is that it does not meet the requirements set forth by the agency. This in, turn, suggests a weakness in your community.
The Bottom Line
While FHA condo approval is not essential to the success of your community, it certainly plays a role. If you are considering getting FHA approval for your condo, make sure to read up on these FAQs first. Knowledge the best tool to have in your arsenal.
If you are having trouble understanding the process, it is a good idea to seek professional help. A remote HOA management company like us can lend you a hand. In that case, don’t hesitate to give us a call today.
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