FHA approved condos are condominiums which meet the mortgage insurance guidelines of the Federal Housing Administration and, therefore, are eligible for FHA mortgage financing. FHA approved condos generally feature a high concentration of owner-occupied units, a strong condo association balance sheet, and are free of litigation.
FHA loans are an important part of today's housing market -- both for single-family homes and for condos.
FHA loans are the cheapest, most-accessible low-downpayment home loan for many U.S. borrowers and FHA mortgages account for more than 1-in-5 closed loans monthly.
Meanwhile, that percentage is expected to rise.
Lenders have actively lowered FHA minimum credit score requirements to as low as 580; and the FHA has lowered its mortgage insurance premiums on all new loans, which reduces "effective" FHA mortgage rates for first-time buyers, repeat buyers, and refinancing households, too.Click to see today's rates (Sep 25th, 2016)
FHA mortgages are mortgage loans backed by the Federal Housing Administration (FHA), a government agency which is a part of the U.S. Department of Housing and Urban Development (HUD), whose mission is to create strong, inclusive communities via affordable homes for all.
The FHA has been helping to fulfill this mission since its formation in 1933.
The term "FHA mortgage" itself is a bit of a misnomer. There is actually no such thing as an FHA mortgage because the FHA does not "make" loans. Rather, the FHA's role is to insure loans.
The FHA is the world's largest insurer of mortgage loans. It protects lenders against loss on loans which go bad.
In order for a lender to get a loan FHA-insured, the loan's traits must meet the insurability requirements set forth by the FHA. Collectively, these requirements are known as the FHA mortgage guidelines.
In keeping with the HUD's missing to provide affordable homes and strong communities, the FHA mortgage guidelines are broad and forgiving. The FHA will insure loans with credit scores as low as 580; but will also insure loans for borrowers who have no credit score at all.
FHA mortgage guidelines also state that home buyers must wait three years after a foreclosure or short sale before buying another home. However, for homeowners who had experienced an "economic event" include job loss, illness, or loss of household income, via its FHA Back to Work program, the FHA will reduce its waiting period to just 12 months.
Another FHA requirement enforces rules for buyers of condominiums -- only FHA-approved condos are allowed.Click to see today's rates (Sep 25th, 2016)
In order to get a condo building "FHA-approved", the FHA requires specific documentation which varies based on the condo building's history.
Getting a condo "FHA-approved" can take as little as two weeks and as long as three months or more. The best way to get a condo FHA-approved quickly is to have the required paperwork handy, and ready to submit to the Federal Housing Administration.
Note that getting a condo FHA-approved is not the home buyer's responsibility. Typically, the responsibility falls to the developer of the condo or an agent for the developer. For more established condo buildings, a condo association or management company will typically take the lead.
Condos which are not yet built or developed are required to send the largest set of documentation to the FHA as compared to other building types. This is because the building has no "history". Developers will often begin the FHA condo approval process as part of the construction planning process.
To get an unfinished condo building FHA-approved, the following information is required:
Once these items are submitted, the FHA may request additional supporting documentation which may include condominium legal documents; a proposed operating budget for the building, including reserves; and, a proposed management plan.
Builders may also be asked to certify that condo units were constructed in accordance with local building codes; and to provide an architect's certification of the construction of the building.
Lastly, condo developers should be prepared to provide the FHA with a survey showing the exact location of all on-site improvements plus existing utility easements; and, a one-year warranty against faulty materials or workmanship.
For buildings under construction, and buildings which have been completed for less than one year, the process to get FHA-approved as a condo is a little less stringent.
A key point with newly-built condos or condos under construction is that unless the building has a 10-year warranty in place at least, home buyers are limited to 90% loan-to-value on their home loan. This goes against the FHA's official 3.5% downpayment allowance so it's important for buyers to understand the policy.
To get an "new" condo building or a building under construction FHA-approved, the following information is required:
In addition, the FHA may request appraisals of individual units; certifications from inspectors; and a construction warranty which shows for how many years the building's workmanship is guaranteed.Click to see today's rates (Sep 25th, 2016)
For condo buildings which have been completed for longer than one year, and for which some of the units remain unsold or the developer has yet to relinquish control to the condo association, a different set of steps is required to seek FHA condo approval.
To get a existing condo building with unsold units or a developer-controlled association FHA-approved, the following information is required:
In addition to the above, if the developer plans additional construction or expansion to the condo building, all of the documents required in the section above -- Requirements For Existing Buildings For Which The Developer Has Not Turned Over Control To The Condo Association -- are required, too.
For condo buildings in which all common elements have been completed for at least one year, and for which a homeowners association is active and in control of the building, the steps to be an FHA-approved condo building are simpler than for less-finished builders..
To get a existing condo building with a viable condo association FHA-approved, the following information is required:
Note that the FHA will not approve a condo building which is shown to have defects in construction; a deficient operating budget; or, for which there are "substantial disputes" or dissatisfaction among unit owners regarding the operation, maintenance, or management of the project.
Buildings with outstanding lawsuits are rarely approved by the FHA as FHA-approved condos.
Condo buildings already approved by the Department of Veterans Affairs for buyers using VA loans get fast-tracked through the FHA condo approval process.
To get a existing condo building which is VA-approved to be FHA-approved, the following information is required:
Pre-sale buildings must show a recorded plat; the proposed operating budget of the condo association; the developer's plan and schedule for development; and, an Affirmative Fair Housing Marketing Plan if the projects consists five or more units.
Existing condo buildings must submit the condo association's current financing statement and operating budget; and, the minutes from the last two meetings.
Buildings with a 10-year warranty at least will allow home buyers to make a 3.5% downpayment via an FHA-insured mortgage. For all others, FHA loan-to-value is limited to ninety percent.
Condo buildings already approved by Fannie Mae can get fast-tracked through the FHA condo approval process, too.
To get a existing condo building which is Fannie Mae-approved to be FHA-approved, the following information is required:
Again, buildings with a 10-year warranty at least will allow home buyers to make a 3.5% downpayment via an FHA-insured mortgage. For others, FHA loan-to-value is limited to ninety percent.Click to see today's rates (Sep 25th, 2016)
FHA guidelines are specific with respect to condominiums, and sometimes stringent. It's more difficult to get approved for a FHA loan on a condo than for a single-family home.
The number one reason why condos are more difficult for which to get approved than detached homes is because condos are more risky for the FHA to insure. If one condo unit in a building goes to foreclosure, as an example, the value of all units in that building can potentially decline.
As home values fall, the cost to insure against loss climbs, which weakens the FHA's business.
The FHA, therefore, imposes a number of restrictions on condos and required that all condos be FHA-approved in order to get home loan approval.
The FHA requires that 70% of the units in a new-construction building to be sold before it will consider the condos for FHA approval. In some cases, the pre-sale requirement will be lowered to 51%, if there's an active market for the building's units.
In order to prove that a unit has been "sold", the FHA will want to see executed sales agreements and evidence that a lender is willing to make the loan. This documentation is not always available to a buyer.
Therefore, in order to prove that pre-sale requirements have been met, letters from lenders which certify that these requirements have been met can be used as a substitute.
Note that the pre-sale requirement will apply to existing condo buildings where the developer is still marketing the building's units.Click to see today's rates (Sep 25th, 2016)
The FHA requires that 51% of the units in a condo building be owner-occupied, or sold to owners who intend to occupy the units, in order for the condo building to be FHA-approved.
In some cases, however, depending on market conditions, the FHA reserves the right to increase owner-occupancy percentages to 70 percent of the building.
Note that lenders are permitted to issue mortgage approvals to FHA borrowers prior to a condo building meeting its 51% owner-occupied requirement. However, the FHA will not insure such a loan (i.e. the loan cannot close) until the owner-occupancy minimums are met.
Once a condo building is approved, at least 80% of the mortgages insured by HUD must be owner-occupied.
In general, rental conversions to condominiums are ineligible for FHA financing.
The exception to get the building FHA-approved is to meet the following three requirements:
Rental conversions must meet all other requirements for FHA-approved condos, too.Click to see today's rates (Sep 25th, 2016)
In order for a condo to be FHA-approved, the entire condominium project must be completed before any mortgage can be insured. This is because owners of a condominium own their individual unit, as well as an interest in the "common elements" of a building which may include lobbies, garages, hallways, and storage spaces.
Sometimes, though, condos are built in phases. If your condo building seeks FHA-approval and its construction is phase-by-phase, the FHA will require the following:
If common areas are not completed as of the date of closing, the FHA will want the builder to escrow 150% of the expected construction costs; and will want the builder to pay its proportional share of the cost of common areas for units which remain unsold or not-yet-conveyed to a buyer.
Buying an FHA-approved condo requires home buyers to meet additional loan standards not required for purchasing a detached, single-family home. Qualified condo buildings, however, get access to the same great FHA mortgage rates as with all FHA-insured loans.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Sep 25th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)