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Mixed-Use Condominium Exception Requests for FHA Condo Approval

By
Mortgage and Lending with ReadySetLoan Condo Team LLC

mixed use fha condo approvalMixed Use Condominium Exception Requests for FHA Condo Approval

Mixed-use condominium projects may be eligible for an FHA condo approval if they meet these two basic requirements:

·        The total floor area of the non-residential space is 25% or less (calculations must be provided) and

·        The non-residential aspect of the condominium is homogenous with the residential component.

Exceptions do exist for condominium projects that have more than 25% of their floor area dedicated to non-residential purposes.  Obviously, they would have to meet additional requirements and they may only be processed for approval at the Philadelphia Home Ownership Center.  DELRAP is not an option.

I fielded an inquiry recently regarding a 3-floor condominium where top two floors are residential units and the first floor is commercial space and roughly 33% of the total floor area.  This raised several questions about the exception process.  Here are the answers to those questions:

1. In addition to the standard criteria, what other criteria are examined in order to approve such a project?  I.E., must the project have excessive reserves?

No, but it would be a positive factor if it did, and you would want to point it out.

2. Does the commercial vacancy rate come into play?  If so, is there an allowable percentage of vacancy of the commercial units at the time of approval?

Yes, the vacancy rate is significant, but no minimum acceptable rate has been established.

3. If the elevator only services the residential units, is it acceptable for the legal documents to require that only the residential units be responsible for its maintenance?

Yes.  However, the legal documents must not give preferential treatment to the non-residential units over those that are residential.  This would not be an example of preferential treatment.

4. Is the single-entity ownership percentage allowed to exceed 10% of the units/floor area (up to 50%) or is the project held to the former 10% rule because this approval would be on an exception basis?

One entity may not own more than 50% of the units, including the commercial floor space.

In addition to the above, exception requests must include a statement of 'good cause' and must accompany the project-approval package.  For the most part, the request should include the documentation listed on the bottom of page 5 and the top of page 6 of ML 2012-18.

Note that only projects completed for more than one year for which control has been transferred to the unit owners are eligible, and they can only be reviewed under the HRAP process. 

Exception requests for FHA condo approval of mixed-use condominium projects are highly subjective.  Homogeneity and the financial picture play a large role in the final determination.

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The Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their approvals with FHA and the VA or become recertified with FHA.  We have assisted nearly 200 condominiums and we can help your association.

 

ReadySetLoan is an active member of the Connecticut and New England chapters of the Community Associations Institute (CAI) and is a frequent contributor to Common Interest Magazine as an expert in FHA/VA condominium project approvals.

 

Please contact us with any questions regarding FHA or VA condominium project approvals.  You can email me at askeric@readysetloan.com or call me at 404-433-4565. I will be happy to answer any of your questions.

 


FHA/VA Condo Approval Specialist

404-433-4565 Cell Phone

860-644-3772 Fax Phone

eric.boucher@readysetloan.com
ready set loan condo team

 

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 Check out our article in Common Interest magazine on page 19!

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Comments (3)

Pete Xavier
Investments to Luxury - Pacific Palisades, CA
Outstanding Agent Referrals-Nationwide

Eric.

Once again an outstanding post.

I thought I knew most everything about condo financing, but I had no idea about FHA's take on mixed use qualifications.

Thanks,

Jul 26, 2014 07:50 AM
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Good morning Eric. There is not a time that I read your post and don't learn something. I was not aware of these ratios at all. When the situation presents itself, I will have the answer.

Jul 26, 2014 07:38 PM
ReadySetLoan Team
ReadySetLoan Condo Team LLC - South Windsor, CT
Residential, Commercial & Condo Financing Experts

Thank you Pete.  That is a huge compliment.  I am glad you found value in this post.

Great Joe!  I am glad this presented you with new information.  I wouldn't think that happens often.

Jul 27, 2014 09:23 PM