The Basics On Condo Financing: FHA Approval & Warrantable Condos

By
Mortgage and Lending with Strategic Mortgage NMLS#160440

The Basics On Condo Financing:

FHA Approval & Warrantable Condos

Recently we have seen an increased demand for clients looking to purchase condos. The important thing to remember however that financing for condos is different than that of single family residence homes. In today's market, in order to finance or refinance a condo, the property needs to fall into one of two categories: it either needs to be FHA approved or a warrantable condo. We will go over basics of these two types of financing options for condos and how to determine if the condo you are looking at falls into either of the two categories.

FHA Approved Condos

Federal Housing Administration financing is available with no restrictions different then loans for single family residences, except that  the property must be inside a condo complex that is FHA approved. Well how do you know if a condo is FHA approved? It is quite simply actually, as the FHA provides a link to check this directly at: https://entp.hud.gov/idapp/html/condlook.cfm. Simply put in the condo project name or other details and you will be able to determine if the condo is approved or not.

 

Warrantable Condos

On the other hand if you are looking to obtain a conventional loan that is backed by Fannie Mae or Freddie Mac, you must determine if a condo is considered warrantable. Unfortunately, there is not a handy tool like the FHA provides to look up individual complexes. Instead, you must determine if the condo project fits into one of three classes that follow. If it does then it warrantable, if not then you cannot obtain a conventional loan on the condo.

CLASS I

1. Developer's control of the homeowners association has been turned over to the condo owners
2. Project is not subject to additional phasing or add-ons which have not yet been completed
3. All common elements and amenities must be fully installed, completed and in operation
4. 70% of all units in the entire development must have been sold and or legally obligated to close
5. 70% of all units in the entire development must have been sold to owner occupants

CLASS II

1. Recent or current condominium conversions (from apartments)
2. Homeowners association has been controlled by the unit owners (other than the developer) for less than two years
3. Project is not subject to phasing or add-ons which have not yet been completed
4. All common elements and amenities are fully installed, completed and in operation
5. 70% of the units in the entire development must have been sold and/or legally obligated to close
6. 70% of the units in the entire development must have been sold to owner occupants
7. No more than 15% of the current unit owners are more than one month delinquent in payment of homeowner's dues or assessments

CLASS III

1. Homeowners Association has been controlled by unit owners (other than developer) for at least one year
2. Project is not subject to phasing or add-ons
3. All common amenities are fully installed, completed, and in operation
4. 90% of the units have been sold (owner-occupancy of at least 60%)

In order to determine if a condo falls into one of these classes a condo questionnaire must be completed to determine eligibility. In addition, depending on the type of down payment, loan purpose, etc, there may be additional restrictions for conventional mortgages for condos.

Always consult a lender for final determination on any type of financing, but now you have a guide to begin to determine what type of financing is available if you are looking at financing or refinancing a condo.

For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

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Ambassador
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Cindy Jones
Integrity Real Estate Group - Woodbridge, VA
Pentagon, Fort Belvoir & Quantico Real Estate News

I'm working with a developer selling a new construction condo project and it is amazing the number of times I have to explain to an agent what all of this means.  I may just print your post and hand it out!

Jun 10, 2009 01:11 PM #1
Rainmaker
1,317,601
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

Even with FHA it takes more than simply being on the FHA list... there is the owner/investor ratio which must be 51% owner occupied... and there must be sufficience insurance/bonding... In my experience the condo qustionnaire has been required as well.  It is a challenge.

Jun 10, 2009 01:17 PM #2
Rainer
2,974
Lisa Rivera
FavoriteAgent.com - Fayetteville, NC

Great information to arm ourselves with.  As Realtors we need every piece of info we can get to help out clients make informed decisions!!!  Thanks again!

Jun 10, 2009 01:57 PM #3
Rainmaker
808,239
Lanre-"THE REAL ESTATE FARMER" Folayan
Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC - Bowie, MD
I don't make promises.I deliver results.SOLD HOMES

Bill I have never done a condo transaction before. But should be doing some soon so this blog came right on time. Thanks for sharing. Great post.

Jul 09, 2011 03:47 PM #4
Anonymous
Kristin

I couldn't have said it better.  I shared this on my FB Page.  Thanks Bill!

May 17, 2012 06:25 AM #5
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