HUD is changing the guidelines for condo projects and existing condo owners who want to get approved for FHA financing. When the condo is approved - that means the buyers can purchase with a FHA loan. Right now if the condo is not FHA approved the lenders are doing what they call a Spot Approval and being able to use the FHA loans. Effective October 2009, the guidelines are changing - Major Guideline changes. The major cha
nge is the Elimination of the Spot Approval Process
What does this mean to the buyers - to find out, while in escrow, that the condo is not FHA approved?
- This can delay or stop the closing.
- FHA will not loan the money if the property is not FHA approved
What types of condominium developments does it affect?
- Proposed/Under Construction;
- Existing Construction; or
- Conversions.
How can you find out if a condo is FHA approved? (go to: https://entp.hud.gov/idapp/html/condlook.cfm) or click here
Here are the guidelines:
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B.
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Applicant Eligibility. Eighty percent of the HUD-insured mortgages in a condominium project must be the principal residence of the owners (owner-occupants).
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C.
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Maximum Insurable Mortgage: Same as Section 203(b) (except that the mortgage amount must be in multiples of $50).
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D.
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Minimum Investment: Same as Section 203(b).
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E.
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Mortgage Term: Same as Section 203(b).
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G.
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Refinancing: Same as Section 203(b).
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FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration. The loan may be issued by federally qualified lenders.
Effective this coming October 1, 2009, this Spot Approval is being eliminated. But the ramifications are going to start being felt right away. The details are outlined in the Mortgagee Letter 2009-19 that was issued on June 12th by HUD. In this latest Mortgagee Letter FHA is announcing dramatic changes to their Condo Approval Process and the ELIMINATION of the Spot Approval Process. While these changes reduce the documentation and requirements for Full Condo Approval, it will place a lot more work and responsibility on Lenders.
Agents get ahead of the game for your buyers and do some research to see if the condo is FHA approved. Also, doing this prior to listing would really help and then put it on MLS.
After this change is into effect - The Lender will have 2 options:
- HUD Review and Approval Process (HRAP).
- Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this Mortgagee Letter. This option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.
This should be checked out early on in the transaction to allow time to get it approved or to advise the buyer that their FHA loan is not going to work.
Stockton: here is the list of condos that are FHA approved: https://entp.hud.gov/idapp/html/condo1.cfm
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Great post Rosemary. It is so hard and yet so important to keep up with all the changing rules and regulations going on in the industry.