As banks have become more conservative, more and more condo buyers have flocked to FHA-insured mortgages for their more attractive required down payments (3.5% or 5%) and greater stability of rates and fees. However, one major change in how FHA operates has fundamentally changed condo financing. Earlier this year, FHA removed the ‘spot approval’ process that allowed a buyer to get approval for a single unit in a development. Today, the entire complex needs to be approved by FHA in order for a buyer to obtain an FHA loan.
Why Is FHA Approval Important?
First, FHA approval opens up a much larger group of buyers, especially for condos who’s lower prices often are appealing to first time buyers who may not have larger down payments of move-up or downsizing buyers. Put simply, more buyers equate to higher potential prices for condos – so the larger the pool of buyer a condo community can have the higher it’s values are likely to be.
In addition, FHA approval standards are generally more conservative than most ‘conventional’ lending options so being able to state that a complex is FHA approved gives a conventional buyer great confidence that they’ll have no trouble getting approved.
How To Get Approved
There are two basic paths to getting an association approved:
- Transaction Based
For associations that haven’t already been approved, they can wait for a motivated buyer who wants to work with their lender and the association to go through the approval process with FHA. However while this method can be effective, it isn’t highly recommended since it may take awhile to find a buyer who’s willing to go through the extended timeframe to get approval.
- Direct Approval
Associations can also go through the process of getting approved directly with FHA with the help of an attorney or lender who acts as a consultant. This process can take a month or two and will come with a modest cost ($1,000 or so), but is often well worth it for an association in improved community home values.
The bottom-line is that condo associations need to become proactive in managing their FHA approval status. They should be working with their management companies and their owners to ensure they are operating within FHA guidelines and they maintain their FHA approved status in order to enable their owners to command top value for their homes when they are ready to sell.
If you have any questions about this recent change, or how you can prepare your association, please feel free to call (206.910.1439) or email us.
Here are a couple articles about this recent shift: