SusanK5 (Utah)
Posts: 30
Posts: 30
Posted:
What information do any of you have regarding the cost and what exactly is involved with haveing your community be approved for FHA loans? Thanks for your help.
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FHA CERTIFICATION FOR LOANS
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TimB4 (Tennessee)
Posts: 21,061
Posts: 21,061
Posted:
Susan
Here are links that might help:
http://www.fhainfo.com/condos.htm
Condominium Approval Process - www.nls.gov (word document)
Hope this helps. Others might have more.
Tim
Here are links that might help:
http://www.fhainfo.com/condos.htm
Condominium Approval Process - www.nls.gov (word document)
Hope this helps. Others might have more.
Tim
TimB4 (Tennessee)
Posts: 21,061
Posts: 21,061
Posted:
Susan,
Here are some highlights I got from seaching the web:
In rules just posted, the FHA says that starting October 1, 2009 condos must meet several new standards:
• All projects not deemed to be used primarily as residential real estate are out.
• Because of noise worries, FHA insurance will be unavailable when properties are within 1,000 feet of a highway, freeway, or heavily traveled road; 3,000 feet of a railroad; one mile of an airport; or five miles of a military airfield. The FHA says that lenders “must avoid or mitigate” such conditions before completing their loan review process, but how does one avoid or mitigate an air force base? How much mitigation is enough mitigation? The obvious result is that with an abundance of caution lenders will be unable to finance properties with potential noise hazards.
• There will be no more FHA loans if the “property has an unobstructed view, or is located within 2,000 feet, of any facility handling or storing explosive or fire-prone materials.”
• Also, FHA loans are out if the property is located within 3,000 feet of a dump, landfill, or super-fund site.
• Not more than 25 percent of the property’s total floor area can be used for commercial purposes.
• No more than 10 percent of the units may be owned by one investor. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants.
• No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.
• At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan.
• At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies).
• Projects in designated wetland and flood zones will not qualify for FHA insurance.
Link to the HUD letter identifying the rules (this is a word document):
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-19ml.doc
Here are some highlights I got from seaching the web:
In rules just posted, the FHA says that starting October 1, 2009 condos must meet several new standards:
• All projects not deemed to be used primarily as residential real estate are out.
• Because of noise worries, FHA insurance will be unavailable when properties are within 1,000 feet of a highway, freeway, or heavily traveled road; 3,000 feet of a railroad; one mile of an airport; or five miles of a military airfield. The FHA says that lenders “must avoid or mitigate” such conditions before completing their loan review process, but how does one avoid or mitigate an air force base? How much mitigation is enough mitigation? The obvious result is that with an abundance of caution lenders will be unable to finance properties with potential noise hazards.
• There will be no more FHA loans if the “property has an unobstructed view, or is located within 2,000 feet, of any facility handling or storing explosive or fire-prone materials.”
• Also, FHA loans are out if the property is located within 3,000 feet of a dump, landfill, or super-fund site.
• Not more than 25 percent of the property’s total floor area can be used for commercial purposes.
• No more than 10 percent of the units may be owned by one investor. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants.
• No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.
• At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan.
• At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies).
• Projects in designated wetland and flood zones will not qualify for FHA insurance.
Link to the HUD letter identifying the rules (this is a word document):
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-19ml.doc
KelliS2 (Georgia)
Posts: 5
Posts: 5
Posted:
I've read through these, and I've gone to the HUD website and saved the documentation. Thanks for these links - gave me a good starting point.
Question - are there condos that do NOT want to be FHA approved? Does everyone want to be and just are not b/c of all of the time and work involved?
I've been told that being FHA approved isn't necessarily a 'good' thing - but I also have a homeowner who is causing 200 headaches a day b/c he lost a sale because we are not FHA approved. He's wearing us out - we were over the 15% delinquencies....and despite a ton of work to get those cleaned up, we're still over. That doesn't even account for all of these other hoops we would have to jump through it looks like.
Obviously I want properties to be able to sell, but I'm just so confused by these guidelines and what that means for the HOA.
Question - are there condos that do NOT want to be FHA approved? Does everyone want to be and just are not b/c of all of the time and work involved?
I've been told that being FHA approved isn't necessarily a 'good' thing - but I also have a homeowner who is causing 200 headaches a day b/c he lost a sale because we are not FHA approved. He's wearing us out - we were over the 15% delinquencies....and despite a ton of work to get those cleaned up, we're still over. That doesn't even account for all of these other hoops we would have to jump through it looks like.
Obviously I want properties to be able to sell, but I'm just so confused by these guidelines and what that means for the HOA.
MicheleD (Kentucky)
Posts: 4,491
Posts: 4,491
Posted:
If your controlling documents do not specify that your association HAS to be FHA-loan compliant, I'd tell the complainer to bug off.
Nicely.
Nicely.
KelliS2 (Georgia)
Posts: 5
Posts: 5
Posted:
Thanks Michele - I don't believe they do, but I will re-verify just to make sure. I would love to tell him that - nicely. 
He's just basically 'threatening' that if we don't get this fixed ASAP that our property is basically black listed, nobody can sell their unit, and agents won't even want to list properties.
I've tried to explain that this isn't the case if the potential buyer was going for a traditional mortgage - this is only FHA loans.
He's just basically 'threatening' that if we don't get this fixed ASAP that our property is basically black listed, nobody can sell their unit, and agents won't even want to list properties.
I've tried to explain that this isn't the case if the potential buyer was going for a traditional mortgage - this is only FHA loans.
MaryA1 (Arizona)
Posts: 7,043
Posts: 7,043
Posted:
Kelli,
Whether or not it is to the benefit of the property owners for your HOA to have the FHA loan certification would be determined by the neighborhood in which you live. If you are in an up-scale neighborhood, FHA financing may not be a factor; however if you're located in a low to moderate income level neighborhood FHA financing might be quite beneficial.
Whether or not it is to the benefit of the property owners for your HOA to have the FHA loan certification would be determined by the neighborhood in which you live. If you are in an up-scale neighborhood, FHA financing may not be a factor; however if you're located in a low to moderate income level neighborhood FHA financing might be quite beneficial.
KelliS2 (Georgia)
Posts: 5
Posts: 5
Posted:
Thanks Mary. We are in an upscale area. It's never been an issue before - I just don't know if it wasn't an issue b/c the laws were looser, or for some other reason. Several units sold last year, even in the down economy.
That's what we're weighing. Our reserve study is more than 12 months old (and is budgeted for next year, not this year). Not to mention the $$ our MC would charge to process the paperwork. Of course the potential seller wants the FHA paperwork done -- he moved out of state and just wants to sell his unit.
We're considering just granting him a 1 year leasing hardship while we sort through this stuff.
That's what we're weighing. Our reserve study is more than 12 months old (and is budgeted for next year, not this year). Not to mention the $$ our MC would charge to process the paperwork. Of course the potential seller wants the FHA paperwork done -- he moved out of state and just wants to sell his unit.
We're considering just granting him a 1 year leasing hardship while we sort through this stuff.
MicheleD (Kentucky)
Posts: 4,491
Posts: 4,491
Posted:
Don't let one squeaky wheel push or intimidate you into anything just to appease him.
Threatening to sue and actually suing and then suing and WINNING are three completely different things.
Threatening to sue and actually suing and then suing and WINNING are three completely different things.
RobertR1 (South Carolina)
Posts: 5,164
Posts: 5,164
Posted:
Kelli,
What does your MC say about this? What does your Lawyer say about this?
I would think all this is at the point that demands the association should establish a Policy and get it on the Boards. Sounds like it could get worse.
Also, give us some information on your complex, how many units, price range, how's the board reacting as a Board? Any official correspondence on this issue with the one owner?
I sure would not try and buy this disgruntled owner off with other people's money (the money belongs to the owners). Granted the Board can spend it but only if it is justifiable, not if it oils the squeaky wheel.
What does your MC say about this? What does your Lawyer say about this?
I would think all this is at the point that demands the association should establish a Policy and get it on the Boards. Sounds like it could get worse.
Also, give us some information on your complex, how many units, price range, how's the board reacting as a Board? Any official correspondence on this issue with the one owner?
I sure would not try and buy this disgruntled owner off with other people's money (the money belongs to the owners). Granted the Board can spend it but only if it is justifiable, not if it oils the squeaky wheel.
TimB4 (Tennessee)
Posts: 21,061
Posts: 21,061
Posted:
Kelli,
One of the new guidelines requires that there can be no more than 50% rental properties within the Association. Unless your governing documents prohibits or limits rental units, it's possible to be FHA approved one year and not the next.
If you do decide on limiting rental units, how would you provide for a fair and equitable decision on who can rent and who can't? No matter how you try to limit (vs. prohibit) rentals it's possible that someone will feel it's not fair and bring litigation. Does any community wish to open up that can of worms?
If the seller really wanted to sell, they had options available to them other then screaming the community becomes FHA approved. One would have been to carry the note themselves (if money was needed right away, the note could have been sold). The seller's Realtor could have worked with banks to get a non-FHA loan approved. It's not perfect, but better then complaining.
Did the seller tell you why the FHA loan was disapproved (specifics) or was it just disapproved because paperwork wasn't submitted for the Association to be FHA approved?
I believe that striving for the conditions listed for FHA approval (reserve funds, minimum delinquency in payments, etc.) is great. However, too many things are outside the control of the Association:
- Who is purchasing units and how many they purchase
- If people pay assessments on time or not - The HOA can file liens and force foreclosures but this takes time (usually more than 30 days - the FHA standard).
- How many rental units one has.
- If a freeway, parkway, or "heavily (not defined)traveled road" is built nearby.
I'm not sure it's worth the Associations time, energy or expense to address these issues in the governing documents just for one lost sale in the community. Now, if you have a large percentage of sales being lost, that could be another issue. Even if you do decide to address these issues and become an FHA approved facility, it's not going to happen overnight. I would expect something like 2-3 years for a rewrite of documents, informing the membership so they actually understand the benefits, risks and complications and finally a vote on the issue.
Of course the choice is yours.
Tim
One of the new guidelines requires that there can be no more than 50% rental properties within the Association. Unless your governing documents prohibits or limits rental units, it's possible to be FHA approved one year and not the next.
If you do decide on limiting rental units, how would you provide for a fair and equitable decision on who can rent and who can't? No matter how you try to limit (vs. prohibit) rentals it's possible that someone will feel it's not fair and bring litigation. Does any community wish to open up that can of worms?
If the seller really wanted to sell, they had options available to them other then screaming the community becomes FHA approved. One would have been to carry the note themselves (if money was needed right away, the note could have been sold). The seller's Realtor could have worked with banks to get a non-FHA loan approved. It's not perfect, but better then complaining.
Did the seller tell you why the FHA loan was disapproved (specifics) or was it just disapproved because paperwork wasn't submitted for the Association to be FHA approved?
I believe that striving for the conditions listed for FHA approval (reserve funds, minimum delinquency in payments, etc.) is great. However, too many things are outside the control of the Association:
- Who is purchasing units and how many they purchase
- If people pay assessments on time or not - The HOA can file liens and force foreclosures but this takes time (usually more than 30 days - the FHA standard).
- How many rental units one has.
- If a freeway, parkway, or "heavily (not defined)traveled road" is built nearby.
I'm not sure it's worth the Associations time, energy or expense to address these issues in the governing documents just for one lost sale in the community. Now, if you have a large percentage of sales being lost, that could be another issue. Even if you do decide to address these issues and become an FHA approved facility, it's not going to happen overnight. I would expect something like 2-3 years for a rewrite of documents, informing the membership so they actually understand the benefits, risks and complications and finally a vote on the issue.
Of course the choice is yours.
Tim
RickW (Illinois)
Posts: 169
Posts: 169
Posted:
We've just been asked by our management company if we would like to proceed with FHA certification. We have 56 units total, townhomes, 3 are for sale, 2 in foreclosure, and one owned by a bank.
It has been suggested this could cost the association approximately $2K. To give a bit of perspective on the dollar amount, our operating expense totals about 93K, reserve contribution about 48K. So, total cost is not all that significant. Yet, we too, struggle with delinquent accounts.
I wouldn't view this as a need to be certified for one owner who is selling, rather I would see it as an added benefit or sales tool for any onwers who are selling, sontemplating selling, or do sell in the future.
Am I wrong in this thinking?
PS It has not been determined whether we would qualify for FHA certification right now or not. If we would pass certification as is, the costs would be much less.
It has been suggested this could cost the association approximately $2K. To give a bit of perspective on the dollar amount, our operating expense totals about 93K, reserve contribution about 48K. So, total cost is not all that significant. Yet, we too, struggle with delinquent accounts.
I wouldn't view this as a need to be certified for one owner who is selling, rather I would see it as an added benefit or sales tool for any onwers who are selling, sontemplating selling, or do sell in the future.
Am I wrong in this thinking?
PS It has not been determined whether we would qualify for FHA certification right now or not. If we would pass certification as is, the costs would be much less.
TimB4 (Tennessee)
Posts: 21,061
Posts: 21,061
Posted:
Rick,
Your thinking is solid. At the annual, or a special, meeting bring the topic up. Explain the pros and cons and have the membership weigh in. Better yet, have the membership vote yea or nay to proceed.
Tim
Your thinking is solid. At the annual, or a special, meeting bring the topic up. Explain the pros and cons and have the membership weigh in. Better yet, have the membership vote yea or nay to proceed.
Tim
RobertR1 (South Carolina)
Posts: 5,164
Posts: 5,164
Posted:
Tim and Rick,
Just to be sure, we are talking condo here?
Our 65 unit condo is not going to be receptive to even consider FHA certificate as I am pretty sure enough of our owners would object to rental restrictions. Personally, I think some form of rental restrictions are necessary to maintain the health of the association. This is a hard sell for a complex that is 30 years old, has always had a strong unrestrained, unenforced rental policy that all ignore. I will continue to bring this issue up with the Board and we will have two new members on our five person board come next week. I expect these two members are going to be strongly opposed to any restriction on rentals at all and this is not going to fly here. It will get worse and with nearly all our owners being absentee owners, the picture is bleak from my viewpoint.
But as soon as this housing market comes back there are going to be some of these owners that will put their unit on the market, then their view of the situation is going to change and the first one that has a buyer and can't swing the deal without an FHA approved buyer, we will see that same owner that rented for years filing suit that the regime is restricting his free market pool. Another danger is that if your location has a strong demand for short term rental units and it is cost effective to invest in one of our units just to rent, then the balance tips further. I have no solution but I am sure, for my association, restricting rentals to comply with the FHA requirements is not going to work, then, of course we have the reserve fund restriction that will be set for each association applying, and God knows what else.
Each individual association will present a picture of what has to be considered and I am sure as the application process goes forward there is going to be revelations. It is going to be a tough call and in the end may just be settled by court challenges and in some states the issue won't be addressed at all.
Just to be sure, we are talking condo here?
Our 65 unit condo is not going to be receptive to even consider FHA certificate as I am pretty sure enough of our owners would object to rental restrictions. Personally, I think some form of rental restrictions are necessary to maintain the health of the association. This is a hard sell for a complex that is 30 years old, has always had a strong unrestrained, unenforced rental policy that all ignore. I will continue to bring this issue up with the Board and we will have two new members on our five person board come next week. I expect these two members are going to be strongly opposed to any restriction on rentals at all and this is not going to fly here. It will get worse and with nearly all our owners being absentee owners, the picture is bleak from my viewpoint.
But as soon as this housing market comes back there are going to be some of these owners that will put their unit on the market, then their view of the situation is going to change and the first one that has a buyer and can't swing the deal without an FHA approved buyer, we will see that same owner that rented for years filing suit that the regime is restricting his free market pool. Another danger is that if your location has a strong demand for short term rental units and it is cost effective to invest in one of our units just to rent, then the balance tips further. I have no solution but I am sure, for my association, restricting rentals to comply with the FHA requirements is not going to work, then, of course we have the reserve fund restriction that will be set for each association applying, and God knows what else.
Each individual association will present a picture of what has to be considered and I am sure as the application process goes forward there is going to be revelations. It is going to be a tough call and in the end may just be settled by court challenges and in some states the issue won't be addressed at all.
RickW (Illinois)
Posts: 169
Posts: 169
Posted:
RobertR1,
I can see that an association such as yours might have difficulty in being FHA certified. Our community is different in that only 1 or 2 units out of 56 are rented. Most owners bought their unit to live in full time.
One of our board members has asked if this is something we could do ourselves, or if a professional is really necessary. Any thoughts?
I can see that an association such as yours might have difficulty in being FHA certified. Our community is different in that only 1 or 2 units out of 56 are rented. Most owners bought their unit to live in full time.
One of our board members has asked if this is something we could do ourselves, or if a professional is really necessary. Any thoughts?
RobertR1 (South Carolina)
Posts: 5,164
Posts: 5,164
Posted:
Rick,
I don't mean to be flippant, but it all depends on how smart you are collectively. If you had a five member board and they were as smart as I, I would hire a lawyer. However, the jury is still out on how complicated this is going to be. I would say, give it a shot and see how far you get, and please, don't forget and post how you are doing. We have had a few post and say they are going to apply....so far.
You are probably right as far as I am concerned, but my concerns are the same as they were years ago, the association will retain vitality longer if the place don't become a motel owned by investor owners.
I don't mean to be flippant, but it all depends on how smart you are collectively. If you had a five member board and they were as smart as I, I would hire a lawyer. However, the jury is still out on how complicated this is going to be. I would say, give it a shot and see how far you get, and please, don't forget and post how you are doing. We have had a few post and say they are going to apply....so far.
You are probably right as far as I am concerned, but my concerns are the same as they were years ago, the association will retain vitality longer if the place don't become a motel owned by investor owners.
RickW (Illinois)
Posts: 169
Posts: 169
Posted:
Quote:
Posted By RobertR1 on 04/22/2010 12:17 PM
Rick,
I don't mean to be flippant, but it all depends on how smart you are collectively. If you had a five member board and they were as smart as I, I would hire a lawyer. However, the jury is still out on how complicated this is going to be. I would say, give it a shot and see how far you get, and please, don't forget and post how you are doing. We have had a few post and say they are going to apply....so far.
You are probably right as far as I am concerned, but my concerns are the same as they were years ago, the association will retain vitality longer if the place don't become a motel owned by investor owners.
Rick,
I don't mean to be flippant, but it all depends on how smart you are collectively. If you had a five member board and they were as smart as I, I would hire a lawyer. However, the jury is still out on how complicated this is going to be. I would say, give it a shot and see how far you get, and please, don't forget and post how you are doing. We have had a few post and say they are going to apply....so far.
You are probably right as far as I am concerned, but my concerns are the same as they were years ago, the association will retain vitality longer if the place don't become a motel owned by investor owners.
The jury is still open on our decision. One board member posed the question. Our management company has no issue with the board proceeding to get qualified on their own. However, the management company does note that they are not experts in this and would not be able to offer the board any guidance.
I, personally, do not want to take this on. I'm willing to help, but not be the go to person. We'll see if any other board members offer to take the lead.
I'm concerned that since this subject is so new, we might find new regulations taking effect while we submit for certification. Or, even worse, is that I don't believe there is a clear definition of what certification entails.
RobertR1 (South Carolina)
Posts: 5,164
Posts: 5,164
Posted:
Rick,
I think it has to be a collective decision also, hard to get that in HOA Boards sometime. I think the comments of the Management company, are to me, I little bit bossy. How long have you had this company? Satisfied with them? They can be well worth the cost if they are good. The real good ones will save you money and keep you out of trouble and you can build up a productive relationship with them. Of course there is the other kind.
In your discussions have you talked about the possibility that FHA mortgages are not a good fit for your association? If you attract the kind of people who don't need to go to any of the Government sponsored programs, they just go get a conventional loan from a bank if they can foot 20 % down. Certainly there are upscale places, in price or demand that are not a fit for FHA. I personally would like our association to qualify for FHA Loans. I can see a test court case in the future where in a condo, if the FHA approval is with held because of excess number of rentals and you want to sell, then the open market is restricted because you may have a buyer but he can only qualify through FHA. Haven't run into anyone that agrees with this, but that is nothing new about a lot of my ideas. Certain as time passes this FHA thing will become clearer. We had a lot of regulation in the not too distant past that was just allowed to be ignored by lenders and such. I hope it don't turn out that way again.
I think it has to be a collective decision also, hard to get that in HOA Boards sometime. I think the comments of the Management company, are to me, I little bit bossy. How long have you had this company? Satisfied with them? They can be well worth the cost if they are good. The real good ones will save you money and keep you out of trouble and you can build up a productive relationship with them. Of course there is the other kind.
In your discussions have you talked about the possibility that FHA mortgages are not a good fit for your association? If you attract the kind of people who don't need to go to any of the Government sponsored programs, they just go get a conventional loan from a bank if they can foot 20 % down. Certainly there are upscale places, in price or demand that are not a fit for FHA. I personally would like our association to qualify for FHA Loans. I can see a test court case in the future where in a condo, if the FHA approval is with held because of excess number of rentals and you want to sell, then the open market is restricted because you may have a buyer but he can only qualify through FHA. Haven't run into anyone that agrees with this, but that is nothing new about a lot of my ideas. Certain as time passes this FHA thing will become clearer. We had a lot of regulation in the not too distant past that was just allowed to be ignored by lenders and such. I hope it don't turn out that way again.
AlexanderB1 (California)
Posts: 1
Posts: 1
Posted:
Here is useful link to search FHA approved condos:
http://fha-approved.condos
http://fha-approved.condos
JH6 (Virginia)
Posts: 30
Posts: 30
Posted:
Depending on your location, units may not qualify for FHA loans--particularly in areas in which there has been a lot of appreciation because the FHA loan limits are not indexed to inflation. In those cases there's no reason to pursue FHA certification. A number of buildings in my area fall into this category and are letting their certifications lapse rather than spending their time and money to renew them.
TimB4 (Tennessee)
Posts: 21,061
Posts: 21,061
Posted:
6 year old thread reactivated
GeorgeR8 (Arizona)
Posts: 182
Posts: 182
Posted:
We are not FHA certified nor want to be. We sell our condos in 1 to 4 days over the last few years. The realtor should have been told upfront about no FHA.
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