Why FHA decided to end spot approvals is a complete unknown to me and is definitely not good news for FHA buyers and condo/townhome communities that are not FHA approved. As of February 1, 2010, FHA no longer allows spot approvals in said communities. A spot approval is one in which FHA looks at an individual unit, the HOA documents, and some other factors to determine if the community is stable and the unit is in good condition and may allow a FHA loan to go through when a condo/townhome community is not FHA approved. And, being that the real estate and mortgage industry had not been using FHA loans prior to 2008ish since the early 90’s, most communities are not FHA approved.
From now on, for a FHA buyer to buy in a condo/townhome community, the community itself will have to be FHA approved. Unfortunately, most communities are not FHA approved since FHA was not used for so long and just reignited about 2008ish. So, FHA buyers will not be able to buy in the majority of condo/townhome communities, which is both bad for the buyer who won’t be able to buy in many of the communities they wish to live in and also for the communities and homeowners in that they will be losing a segment of the buyers that are getting loans through FHA.
I thought it would be a good idea to get this blog out and encourage homeowners and HOA communities that read this blog and live in communities that are not FHA approved to go to the HOA and advise them to get FHA approved. It can be a long process, but in order to keep that buyer market segment that are getting FHA loans, which in this market, there are a lot, it would be advisable to get as many buyers as possible to buy in the community you live in and not lose out on an important niche market.
It is actually not that hard to get FHA approved as long as the community is financially stable and in good condition overall. But, it takes getting information together and going through the process and many HOA communities are just too lazy to do it, even though, it’s not all that hard. If a community is in financial hardship, has low owner occupancy, has high HOA delinquencies, and/or overall bad condition, then FHA won’t approve the community, so no need to bother.
However, for the communities that are stable and in good shape, it is truly a good idea to go through the process to get FHA approved to make sure to entice any potential buyer, which will keep the community more stable in the future and keep values up by not eliminating all the FHA buyers that want to live in a community. So, if you live in a condo/townhome community and your community in not FHA approved, I highly encourage you to go to your HOA and request they get FHA approved to protect your investment, keep values in your community as high as possible, and get as many potential buyers as possible.
A lot of the brand new communities in downtown San Jose (for example) were not FHA approved and seemed to squawk at FHA buyers, they didn’t seem to think they needed their business. Well, guess what? Now, if you go to those same communities, who still haven’t sold out, you will see them advertise being FHA approved all over the place. I saw one the other day that has a huge sign near the top of the building that they are FHA approved. Back about a year ago, when I asked that same community if they were going to be FHA approved, the sales rep looked at me like I was on drugs and said they did not feel it necessary to do so. As usual, I was one step ahead and knew all those new communities should get FHA approved. And finally, even those new communities got a clue that it was important to be FHA approved and not miss that niche market and even use it in their advertising.
I usually don’t ask for feedback on my blogs, but I would love to hear from anyone who is going to take the initiative and go to their HOA to demand the HOA go through the FHA approval process, or go to the next HOA meeting to bring up this subject, or even get on a board to take the initiative to get it done. The more communities that are FHA approved, the more choices FHA buyers have to buy in communities they actually want to live in. And, of course, this will make my job easier. Yes, I am not 100% selfless.
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