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Buying homes on FHA loans

Jocelyn P. PorteriaBy Jocelyn P. Porteria

FHA (Federal Housing Authority) loans familiar in 2006 and 2007 when the housing market started going downhill and lenders no longer offering the no down payment- no document loans are back in business.  While most conventional loans require at least 20% of down payment, FHA loans require only 3 ½% down payments and can ask for the same amount of closing help from the sellers that they can use towards closing costs.

When buying a home especially condominiums and townhomes, ask your Realtor to find out from the HOA (Homeowners Association) or Condo Managements if the said subdivision is approved by FHA.  You maybe all excited with the move and all the sleepless nights only to find out few days before closing that your FHA loan is not approved because the property is not certified for an FHA loans.  Many Condo Communities have lost their FHA certification as FHA revoked its certification of every condo earlier this year.  If the management has not reapplied, units cannot be purchased with an FHA loan.  It used to be so easy for a condo complex to get certified by FHA until they realized that a lot of delinquent and foreclosed properties were condos so the rules have tightened.  In May of 2011, FHA required them to re-apply for certification so there will be no gap.  Some Management companies were able to gather their paperwork in order but a lot did not.  Some did not even know that they have to be re certified but some are just concern about liability issues or simply they did not meet the FHA requirements.  The end result is buyers who want to buy units in uncertified condos are not eligible for FHA financing. Many Realtors, loan officers, buyers, sellers even management realized late in the process.  The certification process takes months and resulted to deals fall through.  Few qualified buyers mean prices have to go down.  Buyers afraid to buy condos because it will eventually hard to sell in the long run.  Even investors are trying to stay away from condos nowadays unless they are cash buyers.

It’s easy to find out if the property is FHA approved, just go to VARealtor.com/condocheck.  Enter a zip code or city and state and you’ll get a listing of every condo association in that area. If it says “expired” then it is not approved.  Look for another property.  If it is FHA approved, it’s time to get in touch with the Condo Management or Association.

For a condo complex to be qualified for FHA loans, the following criteria must be met: 1) it must be covered by a hazard and liability insurance.  Flood and fidelity insurance if applicable.  2) Commercial space- no more than 25% of the total floor area is used for commercial purposes.  3)  Investor Ownership  no more than 10% of the units maybe owned by an investor.  This also applies to rent vacant and unsold units.  4)  Delinquent HOA or Condo dues  no more than 15% of the total units can be delinquent more than 30 days of their condo fees.  5)  Pre Sales  at least 50% of the total units must be sold prior to endorsement of a mortgage in any unit. 6)  Owner occupancy ratio at least 50% of the units must be owner-occupied or sold to owners who will occupy the property.  6) FHA concentration  no more than 30% of the total units can be encumbered with FHA insurance.  7)  Budget  Condo Association budget should include sufficient funds to maintain and preserve all amenities as well as insurance coverage.

You or your Realtor need to find these out by asking the Management Company before putting an offer not before closing or worse, the loan officer advised you that your loan is not approved because the property did not meet FHA loans requirements.  You may be able to convert into Conventional loans if you meet certain qualifications but not everybody can.  This may delay the closing process another 15-30 days if by any luck you can get conventional loans and has 20% in your bank for down payment.  Contact your loan officer to get detailed information on what are your best options.

This will save you a lot of time and frustrations when buying a home when should be your most rewarding experience and most of the times, one of the happiest days of your life.

Note:  Jocelyn Porteria is a Realtor® licensed in VA. She earned a designation of ABR, GRN Accredited Buyer’s Specialist and GREEN Designation, CDPE Certified Distressed Property and Short Sale Expert, (SFR) Short Sales and Foreclosure Resource. For more info, call her at 571-432-8335 or email at realdealconsulting@yahoo.com   for a free confidential evaluation of your individual situation, property value, and possible options. She is also an accredited agent ofAyalaLand, SM Residences and Century Properties in thePhilippines.

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One Response to Buying homes on FHA loans

  1. I’ve been in a Makati condominiums hunt and searching tips and guides online for quite a while and this one really helps. Thanks for the article. :)