It was not many years ago when a client using an FHA loan to buy a home was rare. Over the past few years, the FHA has been the go-to mortgage option for low to moderate income buyers.
For young first time buyers and buyers who don’t have significant cash for a down payment the FHA has been a great option. Among the three major federal lending intermediaries including Fannie Mae and Freddie Mac, the FHA is the most flexible on credit issues. It is also lenient on debt ratios and allows down payments as small as 3.5 percent.
The issue with Condos is not the buyer’s ability to qualify for an FHA loan, it’s that thousands of condo developments are ineligible for FHA lending and the number of prohibited projects is growing. As a result of federal policy changes and decisions by condo associations, thousands of complexes have become prohibited for the FHA.
Since the FHA tightened the rules for condo the number of developments approved for financing has dropped by more than half. The number of approved developments is now just over 10,000 while the total number of condo developments is approximately 144,000. There are very few approved condo complexes in the Sacramento area and is becoming a problem for owners as well as buyers.
The FHA will insure mortgages only on units in condo developments which have passed a certification process that examines budgets, reserves, insurance coverage, percentage of renters, and condo fee delinquencies. According to the FHA this certification process reduces taxpayer exposure to future losses by eliminating poorly managed and fiscally week developments. Condo associations complain the evaluation criteria are overly strict and the process of certification is too expensive.
Various state associations of Realtors are now working directly with condo boards and asking them to re-think their decisions not to pursue FHA certifications and to do this for their owners benefit. The program stresses keeping the condo values at their highest, increasing the pool of potential buyers and helping owner use their equity.
FHA certification may be complicated and cost associations money but could be well worth it for current residents and future buyers.
