Most buyers are aware of the tightened credit standards they will face when applying for a mortgage, but over the past two years, lenders and regulators also have imposed stricter qualifications for the properties themselves. The Federal Housing Administration, which now insures about 50 percent of the nation’s single-family mortgages and an even higher percentage of financing for first-time buyers, has tightened appraisal rules for all properties and has proposed or enacted several new standards that condominiums must meet to qualify for funding.
Some new rules deal with condo ownership, such as requiring 50 percent owner occupancy and setting a maximum ratio of FHA mortgages in a project. Others deal with condo operations, like bonding of management or the maximum allowable percentage of overdue association fees.
Current rules for financing a condo using an FHA mortgage — and many of the same rules also apply to Fannie Mae and Freddie Mac financing — are complicated, and some apparently are rather fluid. The bottom line, however, is that FHA will guarantee a condo loan only when a unit is located in an FHA-approved project.
Laura J. Rubinchuk, a Realtor with the LJR Group of Keller Williams Realty in McLean, said she advises buyers who plan on FHA financing to immediately check each condo project they have an interest in against an FHA-approved list.
The list, at https://entp.hud.gov/idapp/html/condlook.cfm, is searchable by city, ZIP code and project name, and provides the project status, the most recent information about owner occupancy and the concentration of FHA loans.
“Buyers often just assume that a project is FHA-approved, but once their offer is accepted they find that the approval is pending, expired or recently withdrawn,” Rubinchuk said. “This isn’t necessarily fatal, but it might take the lender a month or more to recertify the project.”
Buyers need patience, she said, and noted the Web site is only “fully awake” during regular business hours and “projects aren’t always where you think they should be.”
ZIP codes can be wrong, names can be misspelled, and a development can have different names as the project goes through different phases. She said buyers may have to search more than one variable.
Brian Picker, vice president and branch manager of 1st Mariner Mortgage in Ellicott City, said finding the project on the Web site is only the first step. An FHA lender must recertify a project each time a new mortgage is written.
This involves sending a questionnaire to the homeowners association or its management company to gather up-to-date information on ownership, bonding, insurance and other requirements. There typically is a fee of $50 to $200 for completing the form, so Picker suggested buyers wait to contract for a home or pest inspection until their lender receives an acceptable questionnaire.
A condo’s “approved” status also can fluctuate. The requirement that no more than 50 percent of homeowner association fees be 30 days or more overdue, Picker said, “can change very quickly, especially in a smaller project where only one or two new delinquencies can affect the percentages.”
FHA seems to have a flexible approach to its standards for the level of FHA financing within a given project. Picker said he has received an approval in projects where close to 60 percent of the units had FHA mortgages, even though the concentration is supposedly set well below that figure.
FHA has other rules specific to projects containing retail space, new construction, apartment conversions and those built in multiple stages, but fortunately buyers do not have to navigate or even know about all of them. An FHA-approved lender has the training and access to all the tools needed to get a condo mortgage approved.
