Everything You Need to Know About Condos and FHA Loans

Mortgage and Lending with America's Mortgage LLC

Getting condos approved in 2010 is not an easy task. So, I finally created a checklist of the most important items that can kill condo financing on existing condos with FHA. Now, please know that condo-tels or condos with short-term rentals are not allowed either and condos in a mixed use building are a different breed as well. This checklist applies to existing condos (not new) in your "standard" condo community.

•·         We can still use FHA's approved condo list for the remainder of 2010 before it goes away.

•·         FHA will allow up to 100% of all units in a complex to have FHA loans. However, in 2011 this will decrease to 30% and this is when problems will begin.

•·         At least 50% of the units must be owner occupied. REO properties may be excluded from this calculation.

•·         No one entity owns more than 10% of the units.

•·         No more than 15% of unit owners can be more than 30 days delinquent on their dues. This could cause problems in many complexes as many banks don't pay their dues until closing.

•·         The project's budget provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget.

•·         Unit Owners are in control of the HOA.

•·         HOA must possess liability coverage of at least $1 million and the HOA must possess fidelity bond coverage equal to 3 months of dues of all owners PLUS the amount held in the replacement reserves account. For example, a 100 unit complex with HOA dues of $150 each would have monthly dues of $15,000. Assuming the HOA has $50,000 in their replacement reserves account; fidelity bond coverage must equal $95,000 ($15,000 x 3 + $50,000). I guarantee you that this fidelity bond requirement will kill some deals this year or at the very least slow them down. In the past HOAs only needed fidelity bond coverage equal to 2 months of dues.

•·         The homeowner's insurance held by the HOA must be for 100% replacement cost and this is a new requirement as well.

•·         If the HOA does not have HO-6 Walls In Coverage then the borrower must purchase it at closing equal to a dollar amount of at least 20% of the unit's appraised value.    

Finally, I would recommend that your clients get a copy of the HOA's Condo Checklist before doing an inspection or an appraisal. And if your client is the seller ask them to order this checklist as you list their condo for sale.


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Joel Prince
The Principle Group, Inc - Hixson, TN
Hixson/Soddy Real Estate Broker

Lonnie -

This is a great reference post.  Thanks for including it.  I'll be revisiting this one.

Jan 23, 2010 03:19 PM #1
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Lonnie Glessner

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