Thinking of buying or selling a condo? Will the purchase price be low enough to avoid the applicable FHA loan limit?
If you answered “Yes” to both questions, and if you want to be able to buy with less than 20% down – or make your condo more attractive to those types of buyers – you would be wise to check on the FHA approval status of the condominium project. With the passing of the Housing and Economic Recovery Act of 2008 and the enactment of new FHA mortgage-qualification rules implemented in late 2009, condominiums are now FHA-approved solely on a project-wide basis (as opposed to spot approvals of individual condominiums, as permitted in the past).
So, checking the condominium project’s FHA-approval status is step #1. If approved, determine when the approval expires. If not approved, determine the reason: approval may have expired, been rejected, or simply not yet have been sought, or there may be some other hold-up.
If approval was denied or there is a hold-up, unit-owners in the project should encourage speedy rectification of the problem – if possible. It may not be possible to overcome certain problems in the near term because in addition to the elimination of “spot” approvals, other rule-tightening has taken place. For example, a condominium project already beyond the 30% maximum concentration level for FHA-backed loans may have to await approval until the concentration level is reduced.
With the tightening of lending standards across the board since 2008, FHA-backed loans have become perhaps the leading source of low down-payment home loans. Yet condominiums can be particularly difficult targets of such financing, due to the new, tighter FHA rules.
Scott M. Toussaint, Real Estate Group