Which Certification is Tougher to Get: FHA or VA?

Our former PM let our FHA certification lapse a year or longer ago. Meantime, we've had some requests for VA certification. I'm on the Board and we'll vote on each at our open meeting on Tues. June 30.

Do any of you happen to know which certification is more difficult to obtain. Which has the more demanding requirements for cert? I know that each, at least here, will cost us around $1,500 for a legal review and many documents are required especially, I guess, because we're a high rise condo building.

Our PM presented us with there bids for our vote on Tuesday: $2,000 non-refundable; $1,500; 1,000 refundable if we don't qualify, and $500--refundable if we don't qualify

My thinking is if we have the most demanding done first at $1,500, I think we can get away with spending only $500 for the second. We easily qualified a few years ago, and that's when we were in construction defect litigation and had 43% tenants. A good settlement was reached, and we're also now 32% tenant occupied.

Your experiences or opinions welcomed!

Kerry,

In going through the information I provided earlier, it appears that the VA approval would be easier along with the bonus that the approval doesn't expire.

However, the main difference, based on limited research, between the two is the rental caps and single entity ownership. VA has looser requirements than FHA.

Just keep in mind that the complex will likely need both, as VA approval only helps those who are utilizing their VA benefit by obtaining a VA loan.

Kerry,

Is not having FHA certification all that negative? Without it, marginally-qualified bottom-tier buyers with just 3% down payments would be frozen out. Your owners would be limited to selling only to buyers with the means to afford that 20% down payment required of a traditional mortgage. It may limit the pool of buyers and may not be in the best interest of sellers but if I was an owner who was not selling I would rather have a person of means moving in instead of someone whose last residence was financed under section 8.

When it comes time to sell the potential pool of buyers would be smaller without FHA. Investors looking to buy might take the size of that pool into account. An individual buyer or class of buyers' financial wherewithal should not be a concern to the association as a whole. In my opinion, you enhance the value of your own property more by ensuring there's as big a pool of potential buyers as possible for everyone (including yourself) versus erecting barriers to undesirable owners. It is a choice, though, and I wouldn't begrudge anyone making that choice as they see fit.

I see what you're saying, Richard, about letting the one who is benefitting pay for the certification. I do not agree that an HOA needs to look at potential risk factors the same way a lender would. An HOA is not a lender. Leaving FHA aside for a moment, does the HOA have standing to interfere with a lender making a sub-prime loan to someone who will never be able to afford the monthly payments? No, it does not, and at that point I think the argument about "considering potential risk factors" is bogus.

I don't disagree with the first paragraph. I'll just back away here from the second. Thanks, I needed a laugh at the end of the week! Didn't have anything to do with the crash...

Many thanks for al your thoughtful replies, and your citations Tim, which I read a long with other I found.

I indicated a high rise, Richard, which in our case is a condo. Since 2010, FHA and VA only certify the entire project not any individual units. So, gradually, condos are getting this certification. In my zip code, 95% of the housing is condo projects ranging from pretty modest to very expensive. Also in my zip, 40% of sales are all cash.

The most expensive, amenity-laden & prestigious 178-unit high rise in our 'hood just sought certification and was turned down due to an incomplete package to FHA. It's also about the oldest at 20 y.o.

But why did it apply? I strongly doubt that it was for lower-income first-time buyers who wouldn't be able to afford 3-1/2% down not to mention the taxes and HOA dues (well over $1,000/mo). So why does this high rise care?

One thing I learned today is that to qualify for a reverse mortgage, along with being 62 y.o. the home or condo project must be FHA certified. What a surprise. But this explains why this elegant high rise wants certification. There are a lot of original owners who are "aging in place," but may not have the resources for the medicines, higher HOA fees, funds to update their units, etc. These condos were not expensive when first built. A reverse mortgage takes the pressure off.

If I misunderstand this reverse mortgage requirement, pleases let me know!! I'm serious!

If I do understand it, it's one very good reason to get FHA certification. We too have a significant potion of over 62 owners.

Even our complex is too expensive for most 1st time buyers except for....our active urban setting attracts a lot of newer, younger workers in strong sectors of the economy. Many make really high salaries, but have not yet saved up enough for a 20% downpayment. FHA financing would help our owners sell to them.

The request for VA financing came from a vet who wants to re-fi to buy out his ex. A realtor here says he has a customer who lives here who also wants to refi. We have a fair number of active duty and retired military here.

So, I think i've moved from ambivalent re: FHA to very positive: it would serve existing owners who need reverse mortgages and also provide a bigger pool to sellers. I wasn't opposed to the VA certification as I think all of those who've served our country should get the benefits that are available to them.

Well, a realtor in my HOA tells me that not all reverse mortgages can only be FHA certified condos. She's basically retired though and I'm not sure she's up to date.

Does anyone here know? Come to think of it, I don't think any who reply here regularly have identified themselves as realtors.

I'm just not confident of my interpretation of what I've found online

I have a real estate license, but use it for the mortgage side.

I believe one of our owners got a HECM. As I understand it he put down about $65K on a $130K purchase (new home) and he makes no mortgage payments. Kind of like a Reverse Mortgage and a purchase at the same time.

We are not FHA nor VA certified but I believe this purchase was done before some rules changed.

The more I talk about, the more I realize how little I know......LOL

In case there are a few lurkers who also are in condos as we are, the Owner who wants our big rise VA certified gave a fabulous presentation at our Open Forum last Tuesday night. He also had prepared fine handout for us directors.

One of his most impress stats was that even though 9 of 10 VA buyers put no money down VA loans closed Q$ 2012 with a "foreclosure inventory rate of 2.08%, the best of all types of loans. See www.mortgagebankers.org/NewsandMeida/PressCenter/83582. I didn't look check that source.

Before he presented his case one Owner spoke out against certifying saying that buyers with no down are likely to default. Sure they served their country, but they'd place our HOA at risk of losing dues as these vets would have no skin in the game. (he forgets our high dues, taxes and their closing costs). There were muffled "Boooooos," since many in the audience of about 24 are vets and all four men on the board of 7 are veterans including one who was a career US Marine. The man making his very dated assertion is a non-vet.

Anyway, it passed unanimously and we postponed the FHA agenda item till we have a more info. So if you're in a ondo HOA, this might help and it's good to know that many vest use them for refis, not just for low or zero down payments.

My present home was a foreclosure. I traced back the history of the house and found that the previous owner had cashed out his equity a number of times as the value rose between 2001 and 2008. Then the fertilizer hit the rotary ventilation device. The previous owner lost his job and could not make the payments. We purchased the home for about 40% of what he owed and rebounding values have given us over 50% equity in just four years. We have learned from his mistake - no cash-outs for us.

That's a good question, Larry. But, as a Board, we voted in favor because VA certification, which never expires, can potentially create a larger pool of buyers for our owners, and may give, as in these two cases, benefits to existing owners who want to refinance.

It's not my HOA's business whether a VA-backed loan is the best deal for these two individuals or any future individuals.

Valid point.

Oh, Larry & JohnC, I get what you're saying.

But I think our board made a good decision. The VA certification is for our entire condo HOA of 211 residential units. It lasts the life of our high rises.

It'll cost $1,500 from our operating budget's contingency line item that has its original 2015 $20,000 setting in it with the year half over.

While it may only benefit a few dozen over the life of the building, we have many amenities that benefit only a fraction of our residents. I'd say 15% of us use the gym and even less use the swimming pool. A tiny fraction use our fully equipped men's & women's locker rooms with shower, etc. Maybe 5% use the billiards table. About that % use our lounges w/kitchens for parties.

These all need custodial service daily and have reserves components in them, some of which are very expensive and will need to be replaced. VA certification is a one-time expenditure.

I am thinking though, to give our owners the chance for a good reverse mortgage, which truly may help them "age in place," we seek certification and then have owners pay for it if they use it. After the $1,500 cost to cert VA, I'm willing to shoot for the $500 for the FHA certification. It only lasts for two years.

The "more to this," Larry, is simple and was noted above.

There are two owners who brought it to the board's attention and asked that it be on our agenda. One wants to use his VA loan to buy out his ex wife. The second is a realtor who says he has a client in our HOA who wants to do a VA re-fi. Now the 2nd man also is a vet and my hunch is it would actually be for himself & his wife, who's an active duty lieutenant commander. But he doesn't want to share his private finances with us & the others homeowners who attended, nor should he be forced to.

Our condo towers were first occupied in 2001. Back then, buyers could use VA backed-loans on individual units. So neither you nor I have any idea how many buyers may have used that type of financing until about '09 or '10, when VA & FHA "split up" and both began to require that entire condo buildings be certified, not individual home or units. In addition, until 2010, I have no way of knowing how many owner-occupants may have re-fied via VA.

We have some vets here who were very high ranking while serving and are on their second careers, I can only assume that there are many such folks out there who may want to use a VA loan to buy here. I still maintain that $1,500 to add this amenity that lasts forever is a very cheap way to assist existing owners and enlarge the pool of potential owners.

Kerry

Why should present owners pay for the way some future owners "might" finance? I do not see that as money well spent.

Has he actually applied for a VA loan? Did the VA turn him down because your condo is not certified? What evidence of this did he present? The world is full of dreamers and schemers who may do this or may do that but until he takes some steps to show he is serious this is just speculation.



No dispute with that. If he wishes to keep his personal finances secret then it is not the business of your board to undertake an expense on his behalf. That was his choice. But I also note that it was a realtor who thinks he has a client who wants to refinance and not the client himself who made these statements. I was not aware that realtors were involved with refinancing nor was I aware that they appear at board meetings in place of the owner himself.

In any event, your condo association is not in the business of selling, or assisting the sales, or financing condo units. You have a fiduciary duty to your members to use their funds for the purposes set forth in your declaration and I doubt that there is provision there for spending funds to enable some owners to obtain loans.



I assume, then, that since 2010 the number of VA-backed loans is zero. Is this correct? Aside from the daydreamer and the guy who cannot speak for himself, is there any reason to believe that anyone will actually seek VA financing for a luxury high-rise condo in downtown LA?



It is not an amenity. It is an unauthorized use of your association's funds that will benefit few - and maybe zero - members. Your association is not likely in the business of either assisting some owners (but not all) to obtain financing nor does it exist to enlarge the pool of potential owners.