Check if a Condo Complex is FHA Approved (FAST!)
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If you live in an area where condos are a popular option or you plan to move to an area where there are multiple condominium projects, it’s obvious you appreciate the condominium lifestyle.
What is a condominium lifestyle? For one, it’s more of a community setting. Just the proximity of the individual units next to one another encourages social interaction. You’re likely to get to know your next door neighbor a lot faster.
For example, condominiums typically have entertainment centers and workout facilities where others congregate.
A condo lifestyle also means there’s less maintenance involved. There may be a courtyard with a lawn and landscaping but you don’t have to trim the rosebushes or mow the grass, the homeowner’s association hires a maintenance crew that takes care of all maintenance issues such as repairs, paint and general upkeep. Your responsibility is the interior of your unit, not the sidewalk outside. Condos are also generally less expensive compared to a similarly sized detached single family home. And yet with these differences getting financing for a condo is much like financing any other type of residential property, including using an FHA loan to buy and finance a condo.
When you use an FHA loan to buy a condo you’re buying the property with only a down payment of 3.5% and interest rates for FHA loans are extremely competitive. However, before an FHA loan can be used to finance a condo, the project must be FHA-approved. Typically when a developer begins construction on a new condominium project the developer also begins the process to get the project approved by FHA as well. When buyers approach the sales team to buy a condo if the project is already FHA approved there are no delays.
However, if a buyer does intend to use an FHA loan to buy a condo and the project is not approved, the FHA approval must be issued otherwise the FHA program is not an option. The FHA condo approval process can be rather lengthy and if you’re looking at a condo that is not FHA approved just remember it’s highly unlikely the project can be approved in time to make your scheduled closing.
Get FHA Approved: The List
FHA keeps a nationwide database of approved condos and updates the list as each new project is approved. If you’re looking at a particular project and FHA financing is your choice then visit FHA’s approved condo list and simply enter the name of the project, city, state and zip. If the project is approved it will appear in the database as approved and your financing can move forward. If not, your lender can help with getting the project approved by working directly with the homeowner’s association.
In order to begin the approval process, the lender requests:
• Recorded Conditions, Covenants and Restrictions, or CC&Rs
• Bylaws, adopted, signed and dated by a Board Member
• Most recent balance sheet and income statement no older than 60 days of application submission
• Current budget
• Year-end financial statement
• Copy of insurance policy including hazard and liability coverage
In addition to these documents, there is also an extensive questionnaire that should be completed by the HOA. Some of these questions ask:
• There is no more than 50% of the square footage used as commercial property
• There can be no more than 15% of the property owners more than 60 days delinquent
• An individual entity can own up to 50% of the units in the project if the majority of the units are occupied by owners
• There can be no more than 50% of FHA loans in any individual project
• Evidence of at least 10% of the annual operating budget be verified in a separate reserve fund sufficient to cover any potential insurance deductible, capital repairs and improvements
• Insurance policy must cover 100% replacement cost
• Liability policy with at least $1 million per claim
• No short term leasing allowed (any lease shorter than 30 days)
FHA Loan Programs
FHA loans are an attractive option, especially for first time buyers, due to the low down payment requirement of only 3.5% of the sales price. Lenders offer FHA loans in both fixed as well as variable rate terms. Variable rates are typically offered as hybrid loans where there is an initial fixed rate period before changing into a loan that can adjust once per year. Such hybrids are recognized as 3/1, 5/1, 7/1 and 10/1 where the initial digit represents how long the fixed rate period will last. Fixed rate loans can range in terms from 10 to 30 years and include 10, 15, 20, 25 and 30 years.
Minimum credit scores for FHA loans are 620 although there can be exceptions for a minimum credit score to be as low as 580 and still be eligible for an approval. Lenders will verify sufficient funds to close by reviewing recent bank and investment statements from accounts the borrowers own.
Finally, it’s important to note here that the FHA does not handle the individual loan request but instead an approved FHA lender originates, processes, approves and funds the FHA loan internally. As long as the lender followed proper FHA lending guidelines should the loan ever go into default the lender will be compensated for the loss.
If you intend to apply for an FHA loan to finance a condo it’s best to get your application in as soon as you can and once you find a potential purchase, have your lender access the FHA database to see if an existing condominium project is approved. If it is not, work with your lender to facilitate the paperwork needed in order to receive this approval. Once a project is approved and appears on the list, the entire project is approved and any future buyers using the FHA program won’t have to go through the condo approval process all over again.
