I was recently asked via my Facebook page ...
“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:
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:
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