FHA approval

Started by KoundakjianC • 15 replies • 1616 views

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KoundakjianC (Iowa)
Posts: 3

Posted:

I am on the board of a homeowner's association in Iowa. We recently changed our rental policy to try to restrict the purchasing of units for rental only and to have a little more control over the rental units we now have. A homeowner who is trying to sell their unit wants to go FHA, but the loan officer is telling us that we have to remove the parts of our new rental policy that address the use of units for renting, and to remove the statement that refers to exceptions granted for 'hardships.' He told us that if we don't have FHA approval it will be practically impossible for anyone to sell or buy, and this will also cover any loan that goes Fannie Mae. When we drafted the new rental policy we had a lawyer write it up for us, and he was very careful to make sure we were standing on very sound ground legally. Has anyone else had this kind of problem?

MelissaP1 (Alabama)
Posts: 13,836

Posted:

This is the EXACT point I've been pointing out for years about HOA's controlling rentals. It really is up to the mortgage companies to restrict rental or use of property NOT the HOA's. I am afraid if you want to be able to offer certain types of loans like FHA, your HOA will need to remove that reference. Unless the HOA owns all the property, they can't really put rental restrictions. Although some states do allow some restrictions but that would require more research.

Former HOA President

JanetB2 (Colorado)
Posts: 4,219

Posted:

Hi Koundakjian:

Welcome to HOATalk.

You are potentially standing on firm legal ground to enforce; however, while you can enforce the provision that does not mean that a mortgage lender must loan if the documents contain the restriction. I now more fully understand where Melissa was going with previous posts on this same subject. Similar to Melissa I also do not believe in restricting what an owner can or cannot do with regards to their personal property and renting.

You have to understand that the mortgage lender is concerned if the owner gets transferred or in a financial bind and cannot rent their property the only other option might be foreclosure. Renting is an option some may need to secure and protect their financial situation or property. If foreclosed then the mortgage lender pays the price and will avoid getting into that possible situation.

SusanW1 (Michigan)
Posts: 5,202

Posted:

K - how do you know these people are "purchasing for rental only"?

Are you talking about companies or people purchasing several homes at one time?

LarryB13 (Arizona)
Posts: 4,099

Posted:

I am confused. I recall numerous threads on this forum about rentals and how FHA will not approve new mortgage loans if there are too many rental units in the association. This thread indicates that FHA will not approve a new mortgage loan if the association prohibits all rentals.

The argument against too many rental units makes sense. The argument expressed above to allow some rentals also makes sense. So how does an association word its covenants and/or rules to allow some owners to rent their units while not allowing all owners to rent their units?

JanetB2 (Colorado)
Posts: 4,219

Posted:

Koundakjian:

Is your association Condos or Single Family homes?

BrianB (California)
Posts: 2,820

Posted:

Quote:

Posted By LarryB13 on 03/05/2012 1:50 PM
I am confused. I recall numerous threads on this forum about rentals and how FHA will not approve new mortgage loans if there are too many rental units in the association. This thread indicates that FHA will not approve a new mortgage loan if the association prohibits all rentals.

The argument against too many rental units makes sense. The argument expressed above to allow some rentals also makes sense. So how does an association word its covenants and/or rules to allow some owners to rent their units while not allowing all owners to rent their units?

I would assume the association would simply strike out any reference to what a private owner can do with their private property in a contract between two private citizens not impacting the HOA. That would probably make the FHA happy.

KoundakjianC (Iowa)
Posts: 3

Posted:

This makes sense. I am just trying to find out what the actual FHA rules are concerning townhomes/condos. It seems that no-one can actually find the official FHA position on all this.

KoundakjianC (Iowa)
Posts: 3

Posted:

We have a couple of property companies that are buying up as many units that are in foreclosure so they can rent them out. I know this is a good investment for them, but not so good for the association.

FredS7 (Arizona)
Posts: 927

Posted:

Not sure but I think y'all got the wrong end of the stick.

"Even those with good credit may find it impossible to secure FHA-backed financing for reasons beyond their control. For instance, the new rules block loans for units in financially-struggling buildings and those with high percentages of rental units or owners behind in maintenance fees"

http://articles.sun-sentinel.com/2009-12-15/business/fl-fha-rules-condocol-20091215_1_new-fha-rules-fha-provides-mortgage-insurance-units-in-new-buildings

A cursory google search didn't turn up anything directly from the fha website. However this article, and a few others, suggest fha wants to remove language that makes it EASY to rent, not hard.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Here are some various articles:

http://www.caionline.org/govt/news/Political%20HeadsUp%20Public%20Document%20Library/FHA%20Issues%20Waiver%20on%20Leasing%20Restrictions.pdf

http://www.marketwatch.com/story/condo-buildings-move-to-limit-rentals-2010-09-10

http://condolawguru.com/2012/02/caught-in-the-crosshairs-owners-in-hoas-and-condos/

http://www.houselogic.com/blog/home-loans-mortgages/fha-condo-approval-changes/

It also seems I heard something on the news a short while back about the government looking at these restrictions with potential changes or deleting. Something about restricting market growth for housing in the current economy.

JanetB2 (Colorado)
Posts: 4,219

Posted:

I think I found it and which states in part:

http://www.caionline.org/govt/news/Political%20HeadsUp%20Public%20Document%20Library/CAI%20Joins%20Stakeholder%20Groups%20in%20Concerns%20with%20Qualified%20Residential%20Mortgage%20Regulations.pdf

Another example of this challenge is the Federal Housing Administration (FHA) condominium underwriting guidelines. These rules set the criteria for qualifying for FHA mortgages for condo purchases, an increasingly important source of financing for condo buyers. The criteria set by FHA, which include tight delinquency criteria, limits on investor owned units and rental restrictions, have proven to be a significant hurdle for many condominium associations. Complicating such matters, associations that have taken steps to limit rentals, to meet FHA owner occupancy requirements, are being rejected by FHA for restricting free transferability of property. Both FHA and FHFA will be part of the cabal of federal agencies drafting the QRM regulations.

FredS7 (Arizona)
Posts: 927

Posted:

> Both FHA and FHFA will be part of the cabal of federal agencies drafting the QRM regulations.

Umm...that wording suggests to me that this is not a totally objective source of information.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Hi Fred:

LOL ... it is from CAI ... of course it's not objective.

JanetB2 (Colorado)
Posts: 4,219

Posted:

But I do remember hearing something about this issue on the news the other day from either Senators or Congressmen. I barely caught the end so do not know the full story.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Here you go:

http://www.housingwire.com/article/fha-review-new-condo-restrictions

The Federal Housing Administration may revise recent regulations some say are hurting purchases and refinances for condominiums.

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