Should Your Condo Community Accept FHA Loans?

A very common and important consideration for a condo community, is should FHA loans be accepted? The Federal Housing Authority was designed to help individuals and families of all incomes afford housing. Compatible with single-family homes, townhomes and condominiums, the non-conventional loan requires a smaller down payment and more favorable interest rates. It’s a noble mission, but one that often conflicts with a condo homeowners association and its balance sheet.

FHA Condo Loan Application

Just the facts on FHA

  • 21% of real estate loans are FHA loans
  • 35% of millennials are opting for FHA loans
  • 82% of FHA loans were for first time buyers
  • Statistically, FHA buyers are not more likely to default on a loan
  • FHA loans do not attract a lower level of buyer; in fact, FHA insured loans can reach as high as $800K
  • Increase in pool of buyers for FHA condos increases values for those condos
  • FHA loans are assumable and eligible for reverse mortgages-great advantage
  • FHA criteria means you will have a more stable base of owner/occupant vs investor/tenant

Source: FHA Review

Embedded in these facts, are a variety of misconceptions that are now outdated. New condo buyers due to the great recession, student debt and a host of other factors are more likely to seek FHA approval. In 2018, good credit buyers with steady income are seeking FHA loans. Despite the benefits of accepting FHA, many condominiums are not approved or in compliance.

FHA Approved Condos in Houston

For a city the size of Houston, how many FHA approved condos do you think there are? It’s shocking, but with 2.3 million residents, there are only 21 FHA approved condos in Houston! Interesting enough, 184 condo properties were at one time approved, but many have now let their FHA approval lapse. Let’s find out why.

Getting Approved as an FHA Condominium

Nationwide, only 7% of condominium properties are FHA approved. The biggest reason for a property owner not seeking FHA approval is compliance. A variety of rules must be met and it differs for new vs. old properties, whether a condo owners association is active and by location. In summary, getting approval can be cumbersome and many new developments skip the process.

Working with a property management company can help fast track approval. Accepting VA loans is another way to receive faster approval for FHA compliance. A condo management firm can be an important liaison, providing documentation and data to the government as needed.

Check here for a general outline of FHA guidelines for condo properties. Three of the most common reasons for non-FHA compliance include “a right of first refusal”, owner occupancy percentages and ongoing litigation.

  1. A right of first refusal is a common clause in COA agreements and is allowed for FHA loans. However, many communities poorly define the right of first refusal and allow for a board to reject buyers for any reason. This is not allowed per FHA guidelines.
  2. The second reason for denial is owner-occupancy percentages. A property must maintain an owner occupancy rate of 51%.
  3. A final reason is there cannot be ongoing litigation between the HOA/COA and the developer or a contractor.

Approvals must be renewed every 2 years and the submission cost has dropped to $850 per submission. Not too bad considering it was north of $3000 in the past. Talk to a property management company and see how FHA condo approval can work for you.

Attract More Millennial Condo BuyersConsider the Benefits

When you consider the benefits of accepting FHA loans and the trend towards millennial acceptance, it becomes worth pursuing. Marketing an FHA approved condominium can open the floodgates towards qualified buyers, increasing market value of units and the entire property.

 

In Houston, reach out to RISE and experience a new level of condominium management. We can answer your questions and take your through the FHA approval process. Give RISE a call at (713) 936-9200 or info@riseamg.com.

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