For many years it’s been down right difficult to purchase a condo using FHA as the financing program. What makes that even more difficult is the fact that VA Home Loans and USDA Home Loans generally follow FHA Condo Guidelines. Congress recently supported a bill aimed at requiring FHA to loosen up the rules on Condominiums.
Since 2010 FHA has been the most difficult financing available for those who want to live in a Condo, in part because of the way they certify the project. Because of missed Condo Dues, some Associations were seriously underwater, and so FHA required that they submit the entire associations finances, reserves, insurance, budget and bonds for the Board Members every 2 years.
As a result, only 14,000 of the 152,000 condo associations in the country, and far less than 250 NC condominium communities are currently approved.
The H.R. Bill 3700 would help those wanting to use FHA Condo loans to buy a home, because it requires easing of the guidelines. In NC we have many condominium projects near college campuses (with a “kiddie condo” loan). Those condo projects are extremely difficult to buy in, because the current ratio of Owner Occupied Unites (as opposed to Investment Property) is 50%. With the new guidelines, that requirement to approve the condo project would drop to 35%
FHA doesn’t actually make mortgage loans. They insure the bank, in the event of default – like a private mortgage insurance company. FHA sets the guidelines by which it will insure loans.
So changing the procedures for FHA Condo approvals, and making the process more streamlined, should make obtaining a FHA Mortgage on a Condominium much easier.
And while I know there are plenty of hip young kids who would like to live in a Condo in downtown Raleigh or Charlotte, or by the River in Wilmington – there are plenty of “old people” like us that find that lifestyle appealing too!
FHA Condo Project Approval Guidelines
In Raleigh, FHA currently has 75 Condominium Projects that were approved (as of today). Unfortunately, more than HALF of those projects no longer have “current” FHA documents. That means that we would need to gather all of the Homeowner Association Documents, and resubmit them to FHA if you wanted to buy a Condo in one of those buildings.
Obtaining FHA Condo approval is possible, it’s just going to take a little bit longer to get through the process.
Additional guidelines for FHA Condominium Approvals include:
No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogeneous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.
No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.
At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid pre-sales include an executed sales agreement and evidence that a lender is willing to make the loan.
At least 35 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of pre-sold units (the minimum pre-sales requirement of 50 percent still applies).
If the owner-occupancy ratio includes pre-sales, FHA requires an executed sales agreement and corresponding evidence that a lender is willing to make the loan and the buyer intends to occupy the unit.
On multi-phased projects the owner-occupancy percentage is calculated on the first declared phase and cumulatively on subsequent phases if the ownership of the condominium project remains the same;
If multi-phasing includes separate ownership per phase, each phase is calculated individually; or
Single-phase condominium project approval requests must meet the owner-occupancy percentage requirement.
FHA Condo Guidelines / Borrower Qualifications
FHA does not have maximum income requirements like many other programs. Unlike USDA Home Loans, the FHA Mortgage is not restricted to a certain area of the County. They do, however set FHA Loan Limits based upon the County you are interested in purchasing in. Those loan limits are scheduled to change each October, however, we’ve seen very little change to the limits except in Charlotte – where the maximum FHA Loan limit declined last year.
FHA Down Payment Requirements: If you are purchasing a “regular” house (not a distressed home), FHA requires a 3.5% downpayment. The down payment can be a gift, it can be from the sale of an asset (we had one borrower sell a bass boat so he could buy a house), savings and… if you qualify for NC Housing Finance Agency money up to 3% of this can be given to you by the Government (with a few strings attached of course).
FHA Credit Score Requirements: FHA Home Loans in NC are very popular right now because they have logic driven underwriting that is much more flexible than conventional loans.
In general, FHA Home Loans require a middle credit score of 640 to get approval through the Automated Underwriting System (AUS). In some cases, the system will allow for lower scores, and what’s called “Manual Underwriting.”
Almost ALL lending institutions have their own set of “additional” guidelines, that are called “Over-lays.” Some lenders will NOT made a FHA Home Loan if at least two credit scores are not over the 640 bench mark.
Others, like our Bank, will go below that hard mark – but there a “conditions” that must be met for the Bank to willing to take that risk. (Here are our requirements for loan approval when a borrower has a score between 580 and 619)
Remember while you are looking at Condos that you will have higher “monthly” fees, and again, sometimes those fees (tied to the amenities in the building) make financing a unit the size you’re interested in a little more difficult… on the PLUS side, the Condo fees generally cover the Building and Maintenance – so you only have to worry about maintaining the Carpet (for instance) in your unit (you usually don’t have to be responsible for the roof, or hallways or grounds).
WHAT DOES ALL OF THIS MEAN? Well, from our perspective it means that the process of buying a Condominium in North Carolina and using the FHA Condo Loan Program for that purchase is becoming less costly, and less complicated. If you have specific questions about qualifying for a Condo in NC, and you would like to consider FHA Financing, please call Steve and Eleanor Thorne at 919 649 5058.