What Are FHA Approved Condos?
Home buyers can purchase single family homes, town homes, multi unit homes, and condos with FHA loans. Home buyers can purchase any single family home, town home, or multi unit home they want in any area as long as the property comps out via a residential home appraisal. However, there are restrictions with condominium units. A condo buyer can only purchase FHA approved condos with a FHA loan. Besides the mortgage loan applicant being qualified for a FHA loan, the Condo project needs to be FHA approved. Just because it is on the FHA approved condos list does not mean that the condo complex is currently in active standings on the FHA approved condos list. If the condo a condo home buyer wants to purchase is not on the FHA approved condos list, the condo buyer needs to see if they can qualify for a conventional loan because they will not qualify for a FHA loan if the the condo is not an FHA approved condo.
FHA Loans Versus Conventional Loan For Condo Purchase
FHA loans are owner occupant residential mortgage loans which are backed the Federal Housing Administration and is part of HUD, the United States Department of Housing and Urban Development. The Federal Housing Administration is not a mortgage lender but a government insurer who insures FHA approved mortgage lenders against default from the FHA loans they originate and fund to their borrowers. FHA approved mortgage lenders need to make sure that they follow FHA mortgage lending guidelines in order for the FHA loan to be insureable by the Federal Housing Administration. The Federal Housing Administration is the largest insurer of residential mortgage loans. FHA was created to make home ownership affordable to hard working Americans and has much easier mortgage qualifying guidelines than conventional loan programs. A home buyer can qualify for a FHA loan with higher debt to income ratios, prior bad credit, prior bankruptcy, prior foreclosure, prior deed in lieu of foreclosure, and prior short sale. To qualify for a 3.5% down payment FHA insured mortgage loan, the borrower only needs a 580 FICO credit score. Unsatisfied collections do not have to be paid and non-occupant co-borrowers are allowed with FHA loan programs. FHA allows up to a 6% sellers concession towards a buyer’s closing costs where conventional loan programs only allow 3% sellers concessions towards a buyer’s closing costs. FHA also offers manual underwrites which are mortgage loan applicants who could not get an automated approval via Fannie Mae’s or Freddie Mac’s Automated Underwriting System.
FHA Loans After Bankruptcy And Foreclosure
FHA has much generous waiting period requirements for those who had a prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale than conventional loan programs. A home buyer with a prior bankruptcy can qualify for a FHA insured mortgage loan after 2 years from the discharge date of their bankruptcy whereas there is a mandatory 4 year waiting period for conventional loans. For foreclosures, deed in lieu of foreclosures, and short sales, the mandatory waiting period is three years in order to qualify for a 3.5% down payment home purchase FHA loan.
On August 15, 2013, HUD (the parent of the Federal Housing Administration ) has launched the new FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan programs which waives the traditional waiting period after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale to qualified home buyers. The FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program shortens the waiting period to one year after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale. However, this program is not for everyone. To qualify for the Back to Work mortgage program, the mortgage loan applicant needs to have been out of work due to an involuntary termination and that involuntary termination was the cause of his or her job loss and the job loss was the cause of lack of income and the lack of income was due to the initiation of the bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. The mortgage loan applicant needs to prove that they had at least a 20% reduction in household income and provide at least three year prior to the economic event tax returns and up to date tax returns to show how the mortgage loan borrower went from making a certain amount to the 20% drop of income. The mortgage loan applicant needs to have had great credit prior to the loss of job and after the loss of job, the mortgage applicant can have had bad credit. After the mortgage applicant got a new full time job, the mortgage lender needs to see that they have re-established their credit and no late payments are allowed. The mortgage loan applicant needs to take a HUD approved housing course 30 days prior to applying for a mortgage loan. All FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan programs are manual underwrites.
As for condominium buyers who can only qualify with a FHA insured mortgage loan, they can only purchase FHA approved condos. If the condominium complex is not FHA approved, then their only option is to purchase a home, town home, or multi unit property or see if they qualify for a conventional loan. Again, conventional loan programs have much tougher mortgage lending guidelines.
Qualifying A Non FHA Approved Condo To FHA Approved Condos
Non FHA approved condos can become FHA approved condos if they apply and pay the necessary fees. In general, most condominium complex projects will most likely qualify for FHA approved condos. Once the proper paperwork and fees are submitted to the U.S. Federal Housing Administration, it normally takes between 30 to 90 days to get a non FHA approved condo to FHA approved condo status. It is not up to the condo buyer to get the condo complex FHA approved. This task needs to be initiated by the condominium developer and/or homeowners association committee members.
FHA will not approve a condominium complex that has building violations or have defects. FHA will want to see that the condominium complex is in sound financial standings and no pending major litigation.
Department Of Veteran Affairs Approved Condos Getting FHA Approved
VA approved condos that are not FHA approved can get FHA approved easier than a condominium complex that is not VA approved. The condo complex needs to be 51% owner occupied. The condo homeowners association needs to provide the legal documents of the condominium association along with the financials. The condominium complex homeowners association needs to provide the VA Letter 26-619 VA approval letter along with the project details. New construction condominium complex projects need to provide plat survey, finalized condominium homeowners association operation budget, the condominium developer’s scope of work of the development of the condominium project. For existing condominium complex, the condominium homeowner’s association needs to provide the condominium association’s operating and financial statements.
How Do Mortgage Lenders View Condominiums
Mortgage lenders view condos as riskier investments than single family homes and the lending standards are tougher. For example, interest rates on condos are higher than single family homes. It is tougher to get an automated approval for a condo than a single family home for conventional loan programs. For example, I had cases where a conventional mortgage loan applicant with a 620 FICO credit score got an approve eligible per DU FINDINGS but got a REFER ELIGIBLE PER DU FINDINGS with a condominium. Foreclosures in a condo complex will affect the market prices of all of the units in the condo complex. If a condo complex only has 10 units and 2 out of the 10 units foreclose, than 20% of the condo complex has foreclosed and that will affect the 8 other units.
New Construction Condominium Units
In order for a new construction condominium complex to get FHA approved, 51% of all condominium units need to be sold prior for FHA considering the new construction condo complex as FHA approved. 51% of all condominium units needs to be owner occupant and that requirement can get raised to 70% upon FHA discretion.