Qualify Your HOA For FHA Loans

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Homeowners in your association will expect its board to monitor and maintain good standing on the FHA-approved list for condominium developments.

Ensuring that your condo or townhome association is on the FHA approved list is important to everyone. It’s important to potential buyers who may not otherwise qualify to purchase a home in your association. It’s important to current owners who may want to sell one day and want a larger pool of buyers for their unit. And it’s important to the association itself, as that larger pool of buyers helps create more competition, which raises unit prices.

In the past, whether or not an association qualified for FHA loans wasn’t so important, as lenders could do “spot loans” for specific units. New laws changed that, however. So that FHA-approved pool of buyers can now only purchase in FHA-approved associations.

How to qualify for FHA approval

Among the list of criteria, you’ll need to ensure your association has:

• At least 50 percent occupancy by owners
• No more than 15 percent of units that are delinquent by 30 days on assessments
• No more than 25 percent of total floor space used for commercial purposes
• At least 10 percent of the annual budget going to reserves
• At least two or more units
• Insurance coverage, including hazard, liability and flood (if needed)
• No more than 10 percent of the units owned by a single entity
• All units and common spaces completely built

Your association also needs to be in compliance with state law and other applicable regulations.

How to obtain or renew FHA approval

First, you’ll want to find out if your association is currently approved by visiting the HUD website. Condo and town-home associations must reapply for FHA approval status every two years. If your association is approved, then you’ll simply need to reapply when your two-year period is coming to a close.

If your association is not approved, then there are two ways to gain approval. If a potential FHA buyer is working with a large lender, that lender likely is eligible to certify your association through the Direct Endorsement Lender Review and Approval Process (DELRAP). Certification can take two to four weeks. Or, the association can apply directly through the HUD Review and Approval Process (HRAP), which can take four to six weeks.

Both routes have their pros and cons. Having your association already certified could potentially bring in a larger pool of buyers. On the other hand, you could certify your property in advance and not have any units for sale in the association within that two-year approval period—meaning you went through the time and expense for no reason. Your board will need to discuss what works best for your association. As with any major policy, be sure to communicate your decision to your homeowners.

This article contains general information. Individual financial situations are unique; please, consult your financial advisor or tax attorney before utilizing any of the information contained in this article.

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