Question: I own an apartment in a condominium development that I am trying to sell. I have a potential buyer who wants to use an FHA loan because of its low down-payment requirements, but he says my project is not on FHA’s “approved” list. That strikes me as somewhat discriminatory, so my question is, does the FHA have such a list? And if it does, how come my condo isn’t on it and how does it get on it? Thanks. W.F.
Answer: The Federal Housing Administration does indeed maintain a roster of approved condominium and townhome associations. Because of new rules which went into effect in February, if your development does not appear on the FHA’s roster, your potential buyer will not be able to use an FHA-insured mortgage to purchase your unit.
Now the entire development has to apply to FHA for approval before any single unit can appear on that ever-so-important “approved” list. To apply, an association has to submit its entire set of governing documents, insurance, budgets and recorded maps.Under the new edict, the agency eliminated “spot approvals,” which allowed individual units to become approved for government-backed loans without requiring the entire development or association to go through the approval process.
Before giving its blessing to a property, the FHA wants to be assured the financial condition of your association is strong and that there is no discriminatory language in the governing documents that would violate federal law. Consequently, it can be a long road for your association before you can pack up, move out and let a new owner move in.
There are other rules, too. Certain types of lawsuits — the association cannot be involved in construction defect litigation, for example — are verboten. Also, at least half the units must be owner-occupied, and no more than 10% can be owned by one person.
While an association can certainly attempt to obtain approval on its own, I’d suggest that it turn to a firm that offers such services. Navigating the intricacies of the application process and deciphering the complex web of legislation, regulations and guidelines is not for the faint of heart. Companies like FHA Pros (www.fhaprosllc.com) can much more efficiently handle the process.
Of course, not all associations can immediately jump on the application bandwagon. Often, the decision to become FHA-eligible has to be brought up at the next HOA board meeting. If that’s the case at your project, you and your fellow owners can initiate the process. But again, once the board gives its okay, I’d recommend looking for someone to do the nitty-gritty dirty work for you.
Though the government’s latest effort to save the homes of underwater borrowers who owe more than their houses are worth is voluntary, lenders contacted by the Government Accountability Office say they support the initiative, which is set to be implemented this fall.
Lenders like the program, which would allow any borrower to refinance into a new mortgage, this one insured by the Federal Housing Administration, because it lets them off the hook should borrowers default on their new loan, GAO said in a report earlier this month. Under the plan, which I want to stress is open even to borrowers whose current mortgage is not insured by the FHA, the government would bear the risk, not the original lender.
According to the initial program description, lenders must agree to write down the principal balance of the original first lien by at least 10%. The Treasury Department has designated up to $14 billion for the program.
But there’s a catch. Isn’t there always? Actually, there are several catches, but most importantly, borrowers have to be current on their payments to qualify. So if you are hoping to take advantage of Uncle Sam’s largesse, keep making your payments if you are current and get caught up if you are behind.
Some of the other rules also might limit the number of borrowers who qualify. For example, the new mortgage cannot have a loan-to-value ratio of more than 97.75% of the property’s current value. And if you have a second mortgage, the combined loan-to-value ratios of both the first and junior liens cannot be greater than 115% after you refinance.
Also, your loan application will have to be fully documented and supported by, among other things, tax returns, income and employment verifications and a new appraisal. And finally, unless you have a particularly strong record of making payments on time, your total debt, including car loans and credit card bills, cannot exceed 50% of your income.
Again, these are the preliminary parameters that were mentioned when the program was originally announced. They could change. There could be more hoops, or less, so stay tuned to this station for further information.