An FHA Condo Approval Will Let in the “Riffraff”? Um, No.
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I know that I have addressed this topic before and have presented evidence that FHA mortgages have a LOW default rate. However, I have heard multiple times just in the past two weeks that an FHA Condo Approval Will Let the Riffraff into a condominium community. It’s simply not true.
First off, the public believes that FHA borrowers are inferior to those of Fannie Mae. They believe this because, historically, FHA loans were easier to obtain: they allow for lower credit scores, smaller down payments and troubled credit history (within certain parameters).
The ironic part is that FHA loans outperform Fannie Mae loans. In fact, FHA’s in-foreclosure rate is only around 61% of Fannie Mae’s delinquency rate.
Not only this, condominium loans are the best-performing loans in FHA’s portfolio, loans in the range of $100k-200k are the bulk of FHA’s loans and the performance rates get incrementally better as loan amounts increase over $100k.
Associations think that because FHA is part of HUD, FHA loans are low-income or affordable housing loans. The fact is that FHA and Fannie Mae have nearly the same income qualifications.
For associations, unit owners are the financial backbone of the community. When unit owners don’t pay their condo common charges (or monthly dues), associations are at risk to running out of money to pay their bills.
Some associations believe that these low-income folks will pose a threat to the safety of those in the community or not take pride in their ownership or in being a member of the community.
Because of this, they refuse to get their condominium project approved with FHA. This effectively closes the doors to such undesirables as first-time homebuyers, recent college graduates, professionals beginning their careers, divorcees and even senior citizens.
FHA borrowers are also primarily owner-occupants; that is, they live in the unit they purchased. In fact, the average time an FHA buyer lives in their home is around 8 years. This helps to create stability in a condo community.
Instead of attracting those folks, units are sold to investors. This is especially true for units in the range of $50,000-$150,000, where investing in the unit creates a profitable situation for the investor.
Condominiums are more likely targets for investors than single-family homes in this price range because the investor is not responsible for the majority of the maintenance. He/she pays the common charges and may only have to fix a leaky pipe or replace an appliance now and again.
When an investor buys a unit, the association has no control over who it's rented to. In an attempt to keep out the “riffraff” FHA buyers, the association may now have welcomed the potential for “riffraff” by increasing the number of non-owner tenants.
Will the investor-owner have as much pride in ownership as the owner-occupied FHA buyer? Will the non-owner tenant?
The question that I have for condominium associations is would you rather have a qualified FHA buyer in the community or someone who isn't qualified to purchase their own unit?
An FHA Condo Approval Will Let in the Riffraff? The question should be "what will a high concentration of investors do to the community?"
Top image courtesy of David Castillo Dominici/freedigitalphotos.net
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