Gustan Cho The Mortgage Expert,
Publish On: March 23, 2024
FHA spot loans are back. Condo buyers can now qualify for a condominium unit in a non-HUD-approved condo complex with an FHA loan. Many HUD-approved condo complexes are not renewing their annual HUD certification. This is due to the time it takes and the expensive annual costs. HUD used to have FHA spot loans.
FHA spot loans were discontinued until recently. Condo buyers either needed to go with conventional loans or non-QM loans to purchase a non-HUD approved condominium complex.
We will cover FHA spot loans on non-HUD-approved condominium complexes. The team at Gustan Cho Associates offers to finance non-warrantable and condotel financing. We also have dozens of non-QM wholesale lending partners. In the following paragraphs, we will cover FHA spot loans and how you can qualify for an FHA loan on a non-HUD-approved condominium complex.
Buying a Condo Unit With an FHA Loan
However, HUD has discontinued FHA Spot Loans for several years until now. Today, FHA spot loans are back. Condos are becoming increasingly popular among first-time homebuyers, millennials, busy professionals, students, and seniors. There are expensive monthly association dues. However, condominium owners do not have to worry about paying for maintenance, landscaping, snow plowing, and other services. The association fees take care of most maintenance costs. Speak With Our Loan Officer for Buying a Condo Unit With A FHA Loan
What Are FHA Spot Loans
FHA spot loans on condominiums refer to financing provided by the Federal Housing Administration (FHA) for purchasing individual units within condominium complexes. In traditional FHA condominium financing, the entire condominium complex must be FHA-approved for buyers to obtain FHA-insured loans. However, spot loans allow buyers to obtain FHA financing for individual units within a condominium complex that might not be fully FHA-approved.
FHA spot loans were historically a popular option for buyers interested in purchasing units in condominium complexes that were not fully FHA-approved but still met FHA guidelines.
As of 2009, the FHA significantly restricted the use of spot loans due to concerns about the financial stability of condominium complexes and the risk associated with insuring individual units within complexes that may not meet FHA standards.
Under the current guidelines, the FHA generally requires that the entire condominium complex be FHA-approved for buyers to obtain FHA-insured loans. This requirement helps ensure the condominium complex meets certain financial stability, maintenance, and owner-occupancy standards.
How Can Buyers Purchase a Condominium in a Non-HUD Approved Condo Complex
FHA spot loans allow condominium buyers some exceptions and alternative financing options are available for buyers interested in purchasing units in condominium complexes that are not FHA-approved. Buyers and real estate professionals must stay updated on current FHA guidelines and regulations regarding condominium financing as they may evolve.
FHA Spot Loans Are Back
HUD, the parent of FHA, has condominium lending guidelines different from mortgage lending guidelines for regular single-family home purchase loans. As time passes, it is becoming more difficult to purchase condominium units with FHA loans.
The reason is that more and more condominium complexes are not renewing their annual HUD certifications for the condo complex to be HUD-approved. The Federal Housing Administration allows borrowers to qualify for FHA loans for condominium purchases. However, the condominium complex needs to be FHA-approved.
Buying a Condo In a Non-Approved Condo Complex With an FHA Loan
Non-HUD-approved condo buildings are not approved for FHA condo loans. FHA spot loans were FHA loans that allowed condominium buyers to purchase condominiums in non-FHA-approved condominium complexes. The condominium mortgage was granted the flexibility to qualify for condominium loans on condo units within a complex not on HUD’s FHA-approved list of condominium complexes.
Using FHA Spot Loan To Purchase Condo in Non-HUD-Approved Condo Community
FHA spot loans are now available today with the changes to HUD condominium guidelines. In this article, we will discuss and cover FHA Spot Loans and HUD Condominium Guidelines on FHA loans. Click here to Buying a Condo in Non-Approved Condo Comples With an FHA Loan
Condominium Unit Homebuyers
There are so many new rules and regulations today that every mortgage loan officer can’t know them all. There are many veteran mortgage loan officers with 20-plus years of experience who may not realize the new laws and regulations when dealing with a borrower’s case scenario. In one recent case scenario, a borrower was referred to me who had a purchase contract on a condominium unit that is in a non-FHA-approved condominium complex.
Her mortgage contingency period was over, and she had a closing coming up in less than two weeks. My borrower has good credit, $40,000 in income as a school teacher, and $100,000 in student loans deferred for over a year. The condominium purchase price is $65,000. She does have a $500 car payment and minor credit card payments every month. Her credit scores are in the upper 600s.
Non-HUD Approved Condominiums
As mentioned earlier, it is getting more and more difficult to get an FHA loan on condominiums. This is because condominium complexes are not renewing their HUD certifications annually. The borrower was told by her first mortgage loan originator that she would have no problem getting a mortgage loan approved on a non-HUD-approved condominium unit with an FHA spot loan. The borrower got a pre-approval letter from her initial mortgage loan originator and submitted all her mortgage documents.
How Does FHA Spot Loans Work?
A few weeks later, I got a call from one of my realtor partners asking me if I could help her client get approved for a condominium loan. This client was promised approval from a mortgage loan originator via FHA spot loans. Here was the problem: FHA spot loans no longer existed and were eliminated years ago.
The first mortgage loan originator was a veteran, reputable loan originator who had been in business for many years but did not realize that HUD had eliminated FHA spot loans. GREAT NEWS: FHA spot loans are now available. HUD Condo Guidelines have been updated so that condo complexes no longer have to be HUD-approved for buyers to purchase a condo unit.
FHA Spot Loans Now Available For Condominium Buyers
FHA spot loans were eliminated on February 1, 2010. It was no longer an option for borrowers for condominium purchases. However, the great news is that HUD changed the HUD Condo Guidelines and no longer requires condo complexes to be HUD-Approved. For those interested in purchasing a non-FHA-approved condominium unit, the condominium complex no longer needs to be HUD-approved. Connect with Our Loan Officer for Purchase a non-FHA-Approved Condominium Unit
HUD-Approved Certification on Condo Complexes
HUD-approved condominium projects needed to be re-certified every two years to remain on HUD’s approved list of condominium projects. A non-FHA-approved condominium complex can easily be on the approved list. However, the necessary inspections and fees need to be applied.
FHA Spot Loans For Non-HUD-Approved Condominiums
Effective October 2019, condo buyers can be eligible to purchase condos in non-HUD-approved condo complexes. Restrictions do apply. Gustan Cho Associates are experts in originating and closing FHA spot loans. Condo buyers can now purchase a condominium in a condominium complex that is not HUD-approved.
What Credit Score Is Needed To Purchase a Condominium Unit?
Condos are viewed as riskier investments by mortgage lenders. Lenders can and often add lender overlays on condo units. However, condo unit mortgage guidelines are the same as single-family homes. So what credit score is needed to buy a condo? Wendy, a loan officer at Gustan Cho Associates who has closed 213 condominium units up to date, issued the following statement:
Condominium Credit Score Guidelines on Government and Conventional Loans
What is a good credit score to buy a condo? A credit of at least 580 and a 3.5% down payment — may qualify you for an FHA-insured condo mortgage. Condo homebuyers with credit scores lower than 580 are eligible for an FHA loan with a 10% down payment. You are eligible for an FHA loan with credit scores down to 500 FICO.
Per Fannie Mae and Freddie Mac agency guidelines, Conventional loans require a 620 credit score. VA loans do not have a minimum credit score requirement.
As long as you get approve/eligible per the automated underwriting system on VA loans, you do not need a specific credit score requirement. VA loans do not have a maximum cap on debt-to-income ratios. Condominium Home Buyers who need to qualify for FHA loans or other mortgage loans with a national mortgage company licensed in multiple states with no lender overlays on government and conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
Non-QM Expert Condo Mortgage Lender
One of our areas of expertise at Gustan Cho Associates is originating and closing non-QM loans. Our mortgage, one day out of foreclosure and bankruptcy, has zero waiting period requirements after bankruptcy or a housing event. Our bank statement mortgage for self-employed borrowers requires no income taxes and has no maximum loan limits.
Gustan Cho Associates offers stated-income mortgage programs like in the old days before the 2008 financial crisis on owner-occupant primary homes, second homes, and investment properties.
Retirees who have substantial assets but no traditional income source can qualify for a mortgage with our asset-depletion mortgage program. Gustan Cho Associates prides itself on having a national one-stop mortgage shop due to our government, conventional, non-QM, and alternative mortgage programs for residential home buyers and real estate investors on our investment loan programs. Click here to find a Non-Qm Expert Condo Mortgage Lender
FAQs: FHA Spot Loans on Non-HUD-Approved Condos
1. What are FHA spot loans? FHA spot loans refer to financing provided by the Federal Housing Administration (FHA) for purchasing individual units within condominium complexes. Unlike traditional FHA loans, which require the entire condominium complex to be FHA-approved, spot loans allow buyers to obtain FHA financing for individual units in non-HUD-approved condominium complexes.
2. Why were FHA spot loans discontinued? FHA spot loans were discontinued in 2009 due to concerns about the financial stability of condominium complexes and the risks associated with insuring individual units within complexes that may not meet FHA standards.
3. Why are FHA spot loans back? FHA spot loans have been reinstated to provide more flexibility for condo buyers. Many condominium complexes need to renew their annual HUD certifications due to the time and cost involved, making it challenging for buyers to obtain FHA loans. The reinstatement allows buyers to purchase condo units in non-HUD-approved complexes using FHA financing.
4. What are the benefits of FHA spot loans for condo buyers? FHA spot loans offer condo buyers several advantages, including the flexibility to purchase units in complexes not approved by HUD, lower down payment requirements, which can be as low as 3.5%, and easier qualification criteria when compared to conventional loans.
5. How can buyers qualify for an FHA spot loan? To be eligible for an FHA spot loan, purchasers must satisfy the standard FHA loan criteria, such as maintaining a minimum credit score 580 and making a down payment of 3.5%. Buyers can qualify with credit scores between 500 and 579 by putting down a 10% down payment.
6. What are the current FHA guidelines for condo financing? Under current FHA guidelines, buyers can obtain FHA financing for units in non-HUD-approved condo complexes. This change allows buyers more options and flexibility when purchasing condos.
7. Are there restrictions for FHA spot loans? Yes, there are restrictions. Buyers must ensure that the condo unit and the overall complex meet FHA guidelines. This includes aspects like financial stability, maintenance, and owner-occupancy standards.
8. What happens if a condo complex is not HUD-approved? Buyers can still use FHA spot loans to purchase individual units if a condo complex is not HUD-approved. However, they must ensure that the unit meets FHA’s minimum property standards.
9. Can veterans use VA loans for condo purchases? Veterans are eligible to use VA loans to buy condos. VA loans do not require a specific credit score or enforce a maximum debt-to-income ratio limit, provided that the buyer receives approval through the automated underwriting system.
10. What credit score is needed to buy a condo with an FHA loan? The FHA-insured condo mortgage requires a minimum credit score 580, and a 3.5% down payment is mandatory. To qualify, buyers with credit scores between 500 and 579 must provide a 10% down payment.
11. What alternative financing options are available for non-HUD-approved condos? Besides FHA spot loans, buyers can consider non-QM loans, which offer more flexible qualification criteria. Non-conforming mortgages may be suitable for purchasers with specific financial circumstances, like self-employed people or those with significant assets but lacking a conventional income stream.
If you have any questions about FHA Spot Loans on Non-HUD-Approved Condos or you need to qualify for FHA loans with a lender with no overlays, please contact us at 800-900-8569. Text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.
This blog about FHA Spot Loans on Non-HUD-Approved Condos was updated on June 6th, 2024.
