Lacky Mortgage

On February 1st of 2010 the entire game changed with regards to obtaining FHA insured loans for condominiums. No longer could a seller get "Spot" (single unit) approval when they tried to sell their condo. Now the entire complex has to be approved and under much more stringent regulations to boot.

Many Homeowners Association (HOA) Boards were not aware that HUD was requiring new and tougher criteria to get their complexes approved. Before condominium communities could offer FHA Insured Mortgages they had to prove that they met these new requirements. On the other hand, some of them knew about the changes but just didn't care and others didn't know how to go about getting HUD approval.

Regardless of the reason the end results were the same for the condominium owners that wanted to sell their condos. They could not offer FHA financing to any prospective buyers.

In 2011 just under 40% of all mortgages used to purchase a home nationally where FHA Insured Mortgages. According to the NY Times (February 27, 2012) 1st time buyers used the FHA Mortgage Program in 53% of the cases when purchasing a new home. 53 first time buyers or 40 all around buyers out of 100 is a lot of buyers to pass up. In the market we are currently going through condo buyers are hard to come by so everyone counts. The condos that are offering FHA financing are seeing twice the amount of prospects as the non FHA approved sellers.

As you can readily see being HUD/FHA approved is a tremendous advantage when it comes to selling your condominium. It also should be noted, for any condo owner over 62 years of age, an FHA Reverse Mortgage, which is considered the Cadillac of reversed mortgages, also requires the complex to be HUD/FHA approved.

This brings us to the problem of what a seller can do when they want to sell their condo to an FHA buyer and their HOA board says they are not interested in getting the complex HUD/FHA Approved.

The first thing the seller should do is find out why the HOA is against FHA approval and then the seller can address those issues. I work for a business that gets Condominium Complexes HUD/FHA approved on a daily basis. I will go over the excuses that we hear for a board's refusal to apply for FHA approval.

One reason for the board's negative attitude, that we hear all the time, is that they think that offering FHA Financing will attract "Undesirable" buyers. This reasoning is usually brought about by the fact that the FHA requires only 3.5% down payment where a conventional mortgage can demand up to 20% down. A lower down payment equates to deadbeat buyers in some HOA boards minds.  

First, a higher down payment is not the key to mortgage success. VA mortgages are almost always made with zero down versus 3.5 percent for FHA financing and up to 20% percent for conventional loans. Of all these the VA loans have the lowest foreclosure and delinquency rate.

When you realize that toward the end of 2011  4.29%2 of conventional mortgages nationally were in foreclosure while only 3.24%3  of FHA loans faced the same fate that argument goes out the window.

Another impression that some HOA boards have is that FHA purchasers are bad credit risks. This assumption is also false. A credit score of 620 or above is required by the FHA to get their 1st tier finance program. If a buyer's score is below 620 more down payment will be required or FHA Mortgage Insurance will not be offered. A little education of the board should be sufficient to change their minds on this point.

We also hear that getting FHA Approval doesn't do anything for the HOA. In most cases a simple reminder that the HOA board's only purpose is to oversee the running of the complex in an orderly, efficient and monetarily sound fashion for the greater good of the community. This should include any help that they can offer a condo owner to facilitate the selling, re-financing or acquiring a reverse mortgage for a condominium in the complex.

For the HOA board to choose not to become HUD/FHA approved is not looking out for the complex's and/or the individual owner's best interest. The HOA board should be reminded that at some point in time – Every Single Owner in the Entire Complex Will Want To Sell Their Condominium!  The ability to offer FHA Insured Mortgages just makes selling easer.

Cost is another reason given for not pursuing FHA approval. This can be a factor if a complex's monetary situation is really tight. It is possible to get your community HUD/FHA approved for under $100.00 (not counting the labor time). This can only be accomplished if the board, or their agent, is willing to do a lot of work. They must be willing to properly fill out the application, gather the required documents, furnish all the information that is needed and submit that information in a format and manner that HUD will accept. HUD has issued two articles that list all the documents and information that the board will need4.

If the board chooses to use an FHA condo approval company they should not have to pay much over $1,000.00 for a complete certification and $600.00 or so for a re-certification. After they look over the procedure for obtaining HUD approval we think any board will agree that the money that these companies charge is well worth it.

 As a side note I would suggest that every HOA board steers clear of any company that requires them to pay any money in advance. They will be out the "up front" money if the complex is not approved.

 I have heard of 3 separate companies that offered a money back guarantee and then didn't honor it when the complex was not approved.  A professional approval company will not charge the complex anything until the condominium community is fully HUD/FHA approved.

The last reason we hear can be the hardest to overcome. The board knows that they do not meet the HUD requirements to receive FHA approval. This may or may not be fixable.

 Some of the reasons that a complex may not qualify is that their insurance is not adequate in HUD eyes. Some of these reasons are:

   1 - More than 15% of all home owners' dues are over 30 days in arrears.

   2 - They are not putting 10% or more of those dues into a dedicated reserve   account to cover major repairs or large dollar maintenance items.

   3 - Retail floor space is over 25% of the total floor space.

   4 - 51% or more of the total units are not owner occupied

   5 - More that 50% of all condos were purchased utilizing FHA insured     mortgages.

These are just a few of the HUD requirements that could be holding your condominium community back from HUD/FHA approval. There are quite a few more and some can be fixed and some can't.

 These shortcomings should be addressed on a case by case basis. If the board got this far they will probably be open to getting advice from a professional FHA condo approval company. These companies should be able to tell the board if their problems are fixable and what they need to do to get approved.

 There is usually no charge for this consultation. A fee should only be owed when the complex is fully HUD approved and only after the board has hired the approval company to finish the application.

 Good luck and I hope this article gives you some insight into how your HOA board may be thinking. If you need any help or more information just give me a call at (360) 562 0406 and ask for Sam or Bob. We don't charge anything to talk.    

 Footnotes

1 - http://www.nytimes.com/2012/02/28/business/fha-raising-its-mortgage-fees.html

2 - http://www.calculatedriskblog.com/2011/12/lps-mortgages-in-foreclosure-process-at.html

3 - http://www.mbaa.org/NewsandMedia/PressCenter/77688.htm

Source:  http://www.articlesbase.com/mortgage-articles/what-your-condos-home-owners-association-board-should-know-before-they-says-no-to-fha-approval-5791025.html