FHA Condo Approval Requirements

In love with a Condo?  If you want to get a FHA Loan (which only requires a 3.5% down payment) then you better brush up on which Condominium Projects will be allowed for FHA Loans, and which ones won’t.  With all of the foreclosures, many Condos fell behind on Homeowner Association dues, and therefore no longer meet the FHA Condo Approval Requirements.

First, you’ll want to find out if your association is currently approved by visiting the HUD website. Condo and town-home associations must reapply to meet the FHA Condo Approval Requirements every two years. If the Condo Project you are interested in is approved, then you probably want to have a quick conversation with the Management group (usually a professional company) to be certain that the project is likely to meet the  FHA Condo Approval Requirements the next year.  The assumption being that if YOU are using a FHA Loan to buy this condo, the folks who want to buy your home, when you are ready to move, might want to use that same type of financing.

If the Condo association is not on the FHA Approved List – then all is not lost!  There are two ways to meet the FHA Condo Approval Requirements. If you are buying the unit through our bank, we can do the process through the Direct Endorsement Lender Review and Approval Process (DELRAP). This process for Certification can take two to four weeks.  Additionally, if you have identified a property – and the Association wants to get the approval themselves, they can apply directly through the HUD Review and Approval Process (HRAP), which can take four to six weeks.

Either way, if the Condominium Association is not currently listed on the FHA Approved Condo List – there will be a TON of documentation someone will need to provide us, so that we can get the unit approved for an FHA Loan.

Current FHA Condo Approval Requirements Include:

• At least 50 percent of the units must be occupied by owner occupants. We have so many College and Downtown Condominiums that are rented out in NC, this can be a “killer” right off the bat.
• All of the condo units and facilities & “phases” inside the project must be 100% complete.
• No more than 50% mix, or concentration of the condo can be financed by FHA Loans.  There’s an Association questionnaire that someone has to certify the balance, and then FHA matches that to their records.
• No more than 15 percent of units can be delinquent by 30 days on home owner dues or other association assessments
• No more than 25 percent of total floor space can be used for commercial purposes.  There are some guidelines that allow some wiggle room on this number, but in general, they are looking for well below the 50% threshold / occupant space to commercial space.
• At least 10 percent of the annual budget should be going toward reserves to cover future repairs and upgrades
• At least two or more units
• Insurance coverage, including hazard, liability and flood (if needed)
  • Master or Blanket – Must be 100% of replacement cost of condominium, not including foundation or land.
  • General Liability – insuring all common elements,  and public ways
  • Fidelity Bond – for 20 or more units.  Covers D&O and Employees that handle funds.  Must be 3 months aggregate assessments on all units + Reserves
  • Flood insurance – Required if located within 100 year flood plain.
• No more than 10 percent of the units owned by a single entity
• Right of First Refusal can be present in Covenants, Conditions, and Restrictions (CC&R’s) – However, they can not violate any Discriminatory Conduct under the Fair Housing Act Regulation 24 CFR part 100

The Homeowner’s Association must also be in compliance with state law and other applicable regulations.  We recently had a project come to us that had a county assessment that they were arguing, because they had not met the local jurisdiction requirements, the condo did not meet the FHA Guidelines.  (It was noted on the Appraisal).

Documents Needed to Meet FHA Condo Approval Requirements

We go through the FHA Condo Association Approval Requirements process as a service to someone who is buying a Condo Unit.  Our Bank does NOT do this as a free service for Associations who want to be able to market the property as qualifying for a FHA Loan.  There are several required documents that we will need from the Condominium Association to be able to start the process of getting the FHA Condo approval.

Financial Documents Needed to Meet FHA Condo Approval Requirements

• Balance Sheet of the Condo Association for the most Recent Quarter.
• Current Budget Approved by the Board
• Prior Year End Income Statement for the Condo Association

Legal Documents Needed to Meet FHA Condo Approval Requirements

• Recorded CC&R’s (AKA Declarations, or Master Deed)
• Signed and adopted Bylaws.  Depending on the time of year, this might not be possible.  If the Bylaws are not signed by the Board, then the management company will need to have a Board member Sign and Date the Bylaws.
• Articles of Incorporation filed with the State of NC

Insurance Documents Needed to Meet FHA Condo Approval Requirements

• Insurance Policy Declaration Page – including the Associations Hazard and Liability Limits
• Fidelity Bond Declaration Page (may be found on main insurance policy – Also known as Crime or Employee Dishonesty Policy)

Miscellaneous Documents Needed to Meet FHA Condo Approval Requirements

• Signed Management Company Agreement including services (unless self managed).
• Owner listing / directory – showing on site and offsite addresses (This is how FHA re-checks to be certain no more than 50% of the units are owned and financed by non-owner occupants, and have FHA loans on them).

The FHA Condo Approval Requirements are a crucial part of the First Time Home Buyer Market in many parts of North Carolina.  The certification process is used to obtain not only FHA Mortgage Loans, but it’s the same process that’s used for USDA home loans and VA loans too.  Primarily because of a hard rule against short-term leases, and a requirement for stricter language in the projects covenants, conditions and restrictions (CC&Rs) fewer Condominium Projects in NC Qualify currently for FHA Loans on a Condo Project.

According to analysts, we’ve gone from approximately 40,000 Condominium projects eligible for FHA, Va and USDA home financing down to 26,652 condo associations currently approved nationwide.  Again, there are large segments of the real estate market in NC that gravitate to this form of housing – especially those who are interested in living in a condo downtown Raleigh, Greensboro, Wilmington and Charlotte!

FHA Condo Living Financial Considerations

It’s important to remember that Homeowner Association (HOA) fees are not items that are paid from an escrow account (money collected in your payment monthly) for FHA insured mortgages. FHA considers payment of HOA fees the sole responsibility of the borrower.  For a Townhouse, where you have common walls with other homeowners, and Condominiums, where you have common ownership of walls, stairways, etc… these fees are generally used for a common insurance policy and maintenance.

A new roof for the building, landscaping of common areas and administration fees for the Homeowner Association are usually included in the fees.  Fees in NC for Townhouse Units can run anywhere from $125 to more than $400 for Condominiums that are on the beach, or have assessments against them.

Sometimes, those monthly dues will keep a borrower from qualifying – it’s EXTREMELY important to let your loan officer know exactly what the dues are.  Makes sense, right?  $275 a month Homeowner Association (HOA) dues could be another car payment!

Have questions about cash needed to close and closing costs, or how the new NCHFA down payment assistance program from the State of NC works?  You CAN use these programs to purchase a Condo in NC!

Call Steve and Eleanor Thorne about your particular situation and FHA Condo Approval Requirements at 919 649 5058.  Remember – you might qualify for a Mortgage Tax Credit to purchase a Condo in NC!  Connect with us on Facebook or Google + we’d love to help you make your dreams of buying a Condo in North Carolina come true!