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SRAR Condo Financial Approval

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By: Joey Lewis - Director, Member & Community Relations Southland Regional Association of REALTORS®
 
Since 2010, HUD has started enforcing their long-standing and strict regulations on condominium approvals, including the rule of being re-certified every two years. Prior to 2010, the HUD's strict guidelines were not heavily enforced.
 
Today, all condominium projects are held to the same level of restrictions and the entire project must be certified as a whole, as opposed to the once allowed, "spot approvals", whereby an individual unit in a non-FHA project could be approved if it met certain qualifications. And all condo communities must go through the rigorous process of re-certification, which is the same (paperwork and all) as the initial approval process, every two years. Because of this, many condo communities have allowed their FHA approval status to expire without re-certifying.
 
The downside to this not only affects those who wish to purchase using an FHA loan, but it also adversely affects the condo community since the pool of potential buyers becomes limited; therefore, the selling prices are often lowered in order to move the property. In addition to the rigorous paperwork involved with becoming FHA approved, many condo HOA's and boards have a false impression that buyers using FHA financing are often of a "lower class" and feel that having non-FHA buyers is better.
 
First of all, this is not an accurate assumption. Many first-time buyers use FHA because of the low down-payment option and condos typically attract first-time buyers because they are usually more affordable than a standalone single-family dwelling. But it's not just first-time buyers that utilize FHA lending. Many seniors utilize FHA lending in reverse mortgages, which is a crucial resource for those on a very fixed income to tap into their equity for assistance in retirement years. According to Ken Harney, an award-winning columnist and author on the housing industry, FHA lending accounts for an estimated 90 to 95 percent of all reverse mortgages. Without this resource, many seniors lack the financial resources to keep up their property or livelihood.
 
For a few years, NAR was strongly urging HUD to bring back it's "spot approval" process, but HUD has made it clear that there were too many risks involved and they will only approve FHA lending if the entire community is approved. NAR has also been pressuring HUD to streamline the FHA approval process and possibly making it an electronic filing system. HUD has stated that they are in the process of streamlining the process, but has yet to shift it to an all-electronic system. 
 
In the meantime, the urge is to get non-FHA approved condo projects to bite the bullet, get their ducks in a row, and become approved. Despite any misconceptions, this will help move properties for sale by opening them up to a whole new pool of buyers, therefore increasing the demand and driving up prices. HOA Boards of Directors, with the help of their community managers, can do the work themselves and become approved, or they can hire an independent FHA Approval Facilitator to do the job for them.
 
VA Condo Approvals
VA approval for condo projects is a very similar issue to FHA condo approvals; however, there are even fewer condominium projects that are approved for VA lending. Many eligible and highly-qualified buyers wish to move into these condo projects and utilize their well-earned VA benefits, but cannot because of the projects' lack of approval.
 
While the issue of approval is very similar to FHA lending, VA loans differ from FHA in a couple of ways: First, the approval process is different, but once the project is VA approved it is certified for a lifetime. FHA requires the project to be re-approved every two years. And often times VA approval can be obtained at the same time as FHA approval for a low, additional cost.
History has shown that there are less defaults on VA loans than traditional lending. So urge condo projects to show their support for our troops by becoming VA approved today.
 
For more information on actions being taken by the National Association of REALTORS® on streamlining the FHA approval process, visit: http://www.realtor.org/topics/condominiums
For a complete list of condos already approved for FHA lending, visit: https://entp.hud.gov/idapp/html/condlook.cfm
 
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