FHA Condominium Approvals

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut NMLS #65149

Presently it is easier to do am FHA Loan on a Condo than on a Fannie Mae or Freddie Mac (Conventional Loan), because of downpayment requirements and Condo Project Reviews.  Early last year Fannie Mae and Freddie Mac announced that they would no longer be keeping a list of approved condo's, and that it would be up to each individual Lender to develope their own list.   This means that each Lender has to not only do a Full Condo Review the first time they do a loan on a Condo Complex, but they aslo have to have all of the Condo Doc's reviewed by an Attorney.  This involves getting a copy of the Condo Packet, along with Insurance and current Budget, this increases the time and cost of approving a loan the first time on a condo complex. Minimum downpayment on Condo's can also be higher than on houses, depending on Private Mortgage Insurance Companies (PMI) requirement.  Many refuse to insure Condo's up to 95% LTV.

FHA however, has maintained the same process that they have had for years. If a condo is on the FHA Approved Condo List, then all that is required is a Limited Condo Review, which basically is just verifying that the Owner to Investor Ratio is not below a 51% Owner Occupied.  If a condo is not on the Approved Condo List it does not mean that you can not do a FHA Loan on it, but that now a Spot Approval is required. This simply means that a Full Condo Review Questionnaire, which consists 22 questions, will have to be completed by the Condo Management Firm, along with providing a copy of the Condo Budget for the current year with Condo Reserves included.

If a Full Condo Review Questionnaire needs to be done, the two questions that seem to be the main obstacle  are:

  • Question 13:  Are there any "restrictive covenants" in the legal documents of the association (i.e. right of first refusal or age requirements for owners) which would limit the free transfer of title (FHA will not allow loans to be done if these restrictions exist). 
  • Question 20:  Are there any legal actions against the association or officers.  (FHA has a No Tolerance Policy in regards to litigation against the Condo Association).

FHA does not require a higher minimum downpayment on condo's then they do on other properties (3.5%), and Closing Costs are the same.

If a Borrower is purchasing a condo and does not have 20% to put down, FHA is always the loan product that I look to first, and in my opinion the simplest to do.

 

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

 

 

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Rainmaker
978,605
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Question for you George...Why is it that FHA does not do financing on a condo such as a duplex where it is under 4 units?

Apr 11, 2009 09:17 AM #1
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
Your Connecticut Mortgage Expert

Bill, I have never run into a condo complex that small, but my guess would be that if a whole condo complex consist of just a single duplex unit, then it would not qualify because the owner to investor ratio would be 50% and the owner ratio needs to be 51% or higher.

The other FHA rule that could get in the way is that no one owner is suppose to own more than 10% of the units, again in this case it would be 50%.

Now you have my curiosity, I will ask my Underwriter on Monday if FHA would make an exception in those cases, or if there is another reason why they would not do that loan.

 

Apr 11, 2009 10:11 AM #2
Rainmaker
325,572
Esko Kiuru
Bethesda, MD

George,

That Fannie Mae and Freddie Mac action has given fits to lenders in Las Vegas. To do a condo review takes time and costs money, and at the end it may not even be approved.

Apr 11, 2009 10:54 AM #3
Rainmaker
429,625
Frances C. Rokicki
Fran Rokicki Realty, LLC - Bolton, CT
Broker-Mentor,CRS

We can thank Chris Dodd and Barney Franks for all of the regulations.  George, I heard that NAR took an entire page ad, in the Courant, to thank Chris Dodd????  Are they kidding???

Anyways, hope you are busy as a bee!  We are:)  Thank goodness for people who are paying all of their bills, early!  I see that you have posted lots of good stuff.  I will have to come back for more reading and commenting:)

Have a nice Easter!

It's a Good Life!

Fran

Apr 11, 2009 11:33 AM #4
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
Your Connecticut Mortgage Expert

Esko, it hasn't created as much problems for us, only because of all the other changes such as higher downpayments because of the MI companies.  As a result Conventional Condo Loans became much less attractive, and FHA much more attractive, so we have not been doing many Conventional Condo Loans.  But once the regs change and Conventional Loans start to become more attractive again, that will also start to give us fits as well.

Fran I had not heard of seen the Ad.  I have been busy, in fact this is shaping up to be one of my best months in a long time.  I talked to Bill McCue on the phone and told him that you would like to sit down and talk to him.  He will be back the end of next week, so I will see when I can get him to meet with you.

Apr 11, 2009 12:36 PM #5
Rainmaker
394,342
Philip Turner
MCCUE MORTGAGE COMPANY - New London, CT
Mortgage Banker Since 1980

George - The greater than 10% of the units has stopped me a couple of times on FHA Spot Approvals.  The Spot approval process is not nearly as onerous as the FNMA process.  Once again FHA is the way to go.

Apr 12, 2009 11:56 AM #6
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
Your Connecticut Mortgage Expert

Phil do you know what the answer would be to Bill's question above.

Apr 12, 2009 11:58 AM #7
Anonymous
Ron Hill

Do you have a questionaire that you can email me ? 

rhill@vantexmortgage.com

 

Thanks, Ron Hill

Jun 03, 2009 11:11 AM #8
Anonymous
Melenie

Hi,

If anyone can help with this question.  I am being told that FHA is no longer giving condo approvals out.  Is this true.  I have 3 unit underdeposit in CT and they are all FHA and RD, and we just heard this news and on the spot approval I am told that the unit owners must have control of the assocciation for a year.  I need some answers, if anyone has them.

Thank you, Melenie Partner Network LLC.

Jun 10, 2009 03:12 AM #9
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