YOU asked the question. I answered it: How do I get a condominium (project) approved for FHA lending?

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Mortgage and Lending with NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 IL Lic 031.0006220/WI

 

 

     I was recently asked via my Facebook page ... Gene Mundt Chicago Bancorp blog on gaining a condo project approval for FHA lending

     “How do you get a condominium approved for FHA (Federal Housing Administration) lending?” 

     It’s a great question … and one that is very timely, given the present challenging condominium market in our Chicagoland area and much of the country.  I’ll try to keep the explanation as brief as possible, but please bear with me. (Answer will be found on Facebook as well).
 
     But before proceeding with my answer, I suggest that  (especially if interested in pursuing this action for any reason)  you first familiarize yourself with the www.efanniemae.com website … and also the www.hud.gov. website.  This will help you make sense of some terminology utilized within my answer, plus you will come to understand more clearly the part that everyone involved in this process plays in gaining FHA approval.
 
     (Also, you can go to:  https://entp.hud.gov/idapp/html/condlook.cfm  to find if a condominium development has already been approved for FHA … or if the process must be pursued.  I can also be of assistance regarding this matter, so just contact me should you need help or have questions).
 
     I believe, (as of this blog’s posting date) the bottom-line for submission for FHA approvals is the lender, in most cases.  That said, there are private contractors and providers that consult and then pursue FHA approvals for HOA’s and individuals as a business too. 
    
     My personal opinion is that it's best to work with a lender that has experience regarding this issue and commands the capabilities of securing the approval (or re-approvals) for you.  A lender is going to facilitate the process as quickly and efficiently as possible for their client while also tending to the other issues demanding attention within the condominium purchase and financing.       
    
     Typically, Homeowner Associations, or individual condominium owners, cannot get a condominium development approved without a LENDER'S involvement.  It is the lender that must submit all information and documentation to Fannie Mae for approval.  That information/documentation must be submitted on a "volunteer" basis or in an "as needed" basis.       
    
     A lender that is authorized to review and approve a condominium project will do so through one of two processing options.  The  HUD Review and Approval Process (HRAP) ... and the  Direct Endorsement Lender Review and Approval Process, otherwise known as DELRAP.  The DELRAP process is available only to lenders that have unconditional Direct Endorsement Authority.       
    
     Strict requirements and approval as a  Supervised Lender  must first be met in order to earn this unconditional Direct Endorsement Authority.  15 "test-cases" have to be underwritten prior to Direct Endorsement Authority being obtained.  Each underwriter hoping to take part in this authority must submit a resume for nomination.        
    
     Once this "authority" is earned, the lender can pursue FHA approval for a condominium project/purchase.  Some of the facts taken into consideration during the Condominium Approval process are:     
Gene Mundt Chicago Bancorp blog on Gaining FHA Lending Approval for a Condo (project).
1.   Location of the condominium project and the acceptability of the site   
2.   Condominium project's financial and legal documents     
3.    Environmental reviews might be needed, should the condominium project be new construction or only partially built-out.     
4.    An Affirmative Fair Housing Marketing plan may be required for new construction (or conversions) should the developer intend to market 5+ units within a 12 month period with FHA mortgage insurance.    5.   Hazard, Liability, and when applicable flood insurance will be required and reviewed.     
6.   Commercial projects within the condominium project are allowed, but must meet ratio requirements.     
7.    Owner occupancy rates VS the amount of investors involved within the project.         
    
     This is only a partial list of the condominium project's features and information taken into possible consideration while in the approval process.  As you can see, this whole process can be pretty detailed in nature and fairly daunting.  For me, that showcases the great value to be found by working with a lender that is well-educated and experienced regarding this matter or in the financing of condominiums in your area.          
    
     Keep in mind, that Fannie Mae does not accept "applications" for this condominium approval process from "non-lenders" or "non-Business Partners", (ie banks/mortgage originators that sell mortgages to Fannie Mae).  Also know that some condominium projects can be completely ineligible for approval for a variety of reasons.            
    
     Once the specific condominium in question is approved, the entire condo project is approved.  Be aware that the approval process for a condominium can be fairly time-consuming.  Buyers and their agents should plan on allowing plenty of time (up to 6 weeks or more) for the process to be carried out, no matter what HUD press releases or website tells you.  It's better to be safe (and pleasantly surprised) regarding the planning of a condominium purchase and move, then sorry.         
    
     I hope that this in some small part answers the question submitted regarding the approval process for condominiums.  Should you have further questions about the process or a specific property, please contact me.  I will be happy to discuss it in more detail with you and work with you towards success.     
    
     *  For the benefit of my referral partners, I have crafted a condominium seminar.  If interested in learning more about this seminar and its presentation, or if interested in arranging a presentation for yourself or your Chicagoland agency, please contact me today.   I can be reached at:
     *  Direct:  815.277.4036    *  Cell/Text:  708.921.6331
     *  Skype:  630.219.1316     *  Email:  gene@chicagobancorp.com
     *  Website:  www.genemundt.com  
     *  Website Contact Form:  www.genemundt.com/Contact-Info.html       
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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

                                 IL Lic. #031.0006220  -  WI License #216987                                                                                                    

NMLS #175656

 

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Topic:
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Chicagoland and Northern Illinois Real Estate
Condo Specialists
Advice for Buyers
Tags:
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Rainmaker
104,214
Robert Slick
Beach and River Homes - Georgetown, SC
NRBA, RDCPro, Trident/CCAR MLS

Informative article. This is a double edged sword. Condo owners should consider whether this is even a good idea for their project. Making borrowing easier for condo buyers could increase the chances of weak buyers defaulting in the near future and their subsequent foreclosure lisiting driving down prices in the condo complex.

Jun 14, 2011 04:04 AM #1
Rainmaker
1,240,871
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Robert:  Lots of things to consider prior to the approval process being tackled.  Enough for a few more discussions, I'm sure!  But once the decision has been made, hopefully the above proves helpful.  Thanks for writing ...

Gene

Jun 14, 2011 04:07 AM #2
Rainmaker
2,190,202
Elizabeth Weintraub Sacramento Realtor Top 1%
RE/MAX Gold - Sacramento, CA
Put 40 years of experience to work for you

That's a lot of information, Gene. Generally in Sacramento, if a condo complex is not on the approved list, agents just pass it by. I have been told there is no spot approval, and nobody has the time nor inclination to go through that process to get approved, LOL. However, I am fairly confident that in most cases, the % of owners to non-owners or the underwater HOA is enough to dissuade. We have too many short sales and foreclosures in our complexes. And the prices are so danged cheap, buyers just pay cash.

Jun 14, 2011 05:35 AM #3
Rainmaker
1,240,871
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Elizabeth:  Yours is a comment lament that I hear often.  But for those that still want to trudge ahead, hopefully here's some help.  And you mention a frequent issue.  That of investors percentage or ratio.  Condos are not easy or fun in most cases.  I just read this morning that there is a strong push on FHA to reconsider condo loan guidelines because of exactly what you write and more.  Stay tuned ... things may change yet again ..

Gene

Jun 14, 2011 06:02 AM #4
Rainmaker
1,240,871
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Tagrid:  Rules regarding Spot loans/approvals have changed.  They became unavailable as of February 1st, 2010, I believe.  The whole condo development/complex must be approved now.  What was available to help your brother is no longer in the mix for new condo buyers.  They've tightened the rules for approval and lending drastically because of the de-valuation of properties during the current housing crisis.  

Gene 

Jun 14, 2011 09:45 AM #6
Rainmaker
601,337
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Gene - It is sad that the whole spot loan process was eliminated; did many a condo loans that way.  These days, my condo sales have been strictly limited to the FHA or FM approved complexes.  However, I am currently working with a borrower who is looking for a downtown LA loft and the only program that is conducive to this type of property is the FM HP program. 

So many downtown lofts are in mixed used bldgs with a high percentage of investors.  Furthermore, quite a few of the HOA's have ongoing legal issues with so many of the builders who may not have converted a lot of these units properly (key word here is properly - meaning maybe no permits for some of the work). 

Don't even get me started on the bldgs that have been deemed "historic"; whole other issue.  Anyway, this is where the FM HP program comes in handy because full HOA certs are not required and all they require usually is just the simple HOA questionnaire - usually!

Jun 14, 2011 11:37 AM #8
Rainmaker
1,240,871
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Donne:  As you say, there are some strong advantages to using and being educated regarding this program ... and this new incentive program just adds to those reasons and advantages.  Seems spot loans are sadly missed, as evidenced by Tagrid's comment.  You never know, they may appear again at some point.  I read just this morning that much of this is under re-examination again.  Is it any wonder people are confused???

Gene 

Jun 14, 2011 02:58 PM #9
Rainmaker
1,169,684
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Wow, my eyes glazed over after line 3 of this post.  I admire any lender who tackles this complicated process.  It will pay off in the end, but the headache.....

Jun 16, 2011 05:44 PM #10
Rainmaker
1,240,871
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Most definitely, Jane ... but there's no way around it should a client wish to take this route.  The good news is, once tackled .. the entire project is done and over with.  Whew!  This seems to be an area where agents seek me out (and other lenders, I'm sure).   I think it's my appraising background paying off.  Hoping that continues ...

Gene

Jun 17, 2011 05:50 AM #11
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Rainmaker
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Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi

708.921.6331 - 40+ yrs experience
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