FHA Pre-Approvals, New Condo Projects and the sudden sound of screeching tires on the pavement (Repost)
You hear the words.."Oh, it's a new condo project!" being excitedly proclaimed from your young borrower's lips. "IT'S A WHAT?" you think to yourself?
I'm sure I'm not the only loan officer this has ever happened to. You've got your borrowers pre-approved for FHA financing and you've provided their agent with a pre-approval letter. Your excited young borrowers are now anxiously pounding the pavement looking for that perfect first home.
After several weeks of looking, they call one day and proclaim they've found the perfect house, they made an offer and it was accepted! You congratulate them and are equally excited for them. Then you hear the dreaded words......"Oh, and it's that brand new condo project in town!"
STOP THE PRESSES!!!!!! What do you MEAN it's a BRAND NEW CONDO PROJECT!?
Your heart sinks as you prepare to tell them the bad news. For a condominium to be eligible for FHA financing, it must be located in a project that has been FHA approved. Because the above scenario is a brand new project, most likely, the project is not approved, and therefore, the deal is most likely dead.
Here is is a link for Approved Condo Projects: https://entp.hud.gov/idapp/html/condlook.cf
Now, had this been an existing condo project, and was already on the FHA approved list, chances are, you should be fine. There will be a few other condo requirements however. The project must be 51% or more owner occupied and at least one of the appraisal comparables should be in a unit within the subject project and at least one comparable should be from another project.
While not entirely impossible, it is "possible" to obtain FHA Condo Project Approvals, but it is extremely difficult, requiring tons of paperwork ,an attorney opinion letter (could run thousands of dollars) and patience as it can take months for FHA to grant the project approval.
Fortunately, in the case above, when the initial approval was granted, the lender does have verbiage specifying that should the subject property be in a Condominium project, additional restrictions and conditions will apply.