FHA Loans & The Mortgage Market

These Q and A's are managed by Richard Thompson from www.regensis.net. Richard has been involved for many years with various aspects of community living. He provides consulting services to community groups and industry vendors.

Question: How do FHA loans currently factor into the HOA mortgage loan market?

Answer: Following the real estate crash of 2008, the Federal Housing Administration (FHA) emerged as a key player in the residential mortgage industry. FHA currently insures over 50% of new residential mortgages nationwide. FHA loans are of particular interest to homeowner associations where it can be very difficult to find conventional lenders willing to write mortgage loans. FHA has established limits on the maximum loan value for single family dwellings according to county. These loan limits can vary significantly from county to county and are subject to change. Current FHA limits can be found at this link (Information provided by Chris Scott of Landye Bennett Blumstein LLP).

Question:Some owners are requesting that the HOA borrow money for our upcoming painting and roofing projects. What are the pros and cons?

Answer: Loans to HOAs are very expensive in terms of fees and interest rate since they are considered commercial loans which typically have shorter terms, like 5-10 years, and often carry annually adjustable interest rates. On top of this, it's up to the HOA to collect numerous loan payments from each member. As a general practice, HOAs should stay away from borrowing money and let each member provide their own source of funding. For most, home equity loans are easily obtained and have low or no fees and the lowest interest rates available. Others may have savings. Let each decide how to provide the funds and steer the HOA clear of the banking business.

Finally, it sounds like you don't have a reserve plan or, if you do, it isn't being adequately funded. A properly executed and funded reserve plan is designed to provide funds for things like painting and roofing. If you don't have a reserve study, order one as soon as possible. If you have one, update it and begin a funding plan that will sock enough money away to avoid the scenario you describe in the future.

For answers to your own questions and  more innovative homeowner association management strategies, see Regenesis.net.

Montgomery County Pa FHA Loan Limits

FHA Mortgage Limits List - FHA Forward

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This is a listing of the FHA single family mortgage limits. This listing was downloaded from the Department's Computerized Home Underwriting Management System. Since mortgage limits are updated constantly, please contact the Homeownership Center if you believe this information is in error.

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