What's more annoying than someone scratching their nails on chalkboard? Working on a condo re-sale transaction for 20+ days only to find out the complex is not FHA approved, needs spot approval, needs lender certification, blah, blah, blah.
Hate to bash loan officers but there are a few out there that are unaware of the recent FHA rules for condominiums.
I had the pleasure of speaking with Jim Larson with Bank of Commerce the other day. I was complaining to him about a transaction I was working on with another loan officer...
"Jim, I am in a situation where we have been waiting for loan approval for 24 days and we still don't know whether or not we can get a condo spot approval for an FHA buyer. I hate the thought of all of us working hard on this escrow for weeks only to find out the deal is dead. I wish there was a way to identify whether or not a condominium is or has the potential to be FHA approved before an FHA offer is even submitted. "
"Diana, there are 2 ways to identify if a complex is going to fly with FHA approval. These steps SHOULD be completed by the listing agent before or at the time the property goes on the market."
Step 1. Go to U.S Department of Housing and Urban Development website to check for FHA approval. You will need to know the name of the complex. Be sure to check using both approval methods and use ALL for the status. If the complex is approved, you're good to go as long as the approval is date has not expired (2 years). If it's pending approval, you may still have a long way to go and it might be best to hold off accepting FHA offers.
If it is NOT approved, then the individual unit will need a spot approval (FHA approval for that one particular unit only within the complex).
Step 2. If the FHA complex approval is beginning to look like chocolate pudding after attempting step 1, you will need to obtain specific information from the HOA for a spot approval.
HOA says they won't provide the information? That's just shooting themselves in the foot, Compadres! Let's face it, most of our first time buyers are looking to buy condo's because it's an affordable solution to home ownership qualification. If the HOA's don't play nice with us, they won't get the FHA approvals. Most sellers of a complex would be very disappointed if their association was unwilling to obtain FHA complex approval! A pro-active HOA is delighted to provide the information requested. In fact, they keep an FHA information sheet on file so they can quickly distribute upon request. Also they are in the process of obtaining FHA certification for the complex on their own so they can greet first-time buyers with open arms!
If it's determined that the complex does not meet FHA criteria, then sorry it's a no go for FHA borrowers. Only cash, etc. can be accepted. I would be ever so grateful if a listing agent would let my FHA buyer's agent know this up front before wasting everybody's time!
The FHA rules I'm referring to are dated as of June 12th, 2009 and in this day and age, that's starting to smell pretty ripe if you know what I mean. Supposedly, upon release of this letter, spot approvals were eliminated because of a new "accelerated" approval process for entire complexes. However, I am still seeing spot approval being completed via an FHA spot approval extension rule. There is a memo that was sent out recently indicating there will be changes to the rules again in the next few weeks.
So where is the spot approval checklist and what are the questions that need to be answered by the HOA before the property goes on the market?
Ask your favorite lender who understands the FHA approval process for their list. A competent officer will already have a checklist prepared and will be more than willing to either provide a copy to you OR present the list themselves to the HOA.
The questions should refer to the specific rules for the new FHA Condominium Approval Process Mortgagee Letter dated 6/12/09.
Once HUD snuffs out the spot approvals, our FHA loans are DOA for condo and townhouses, unless the entire complex is FHA approved!
I've said it once and I'll say it again. It is more important than ever to dialogue with loan officers BEFORE deals are put together to prevent wasting everyone's time and energy!