FHA spot condo approval

With so many urban centers being classified as "declining markets," it is now more important than ever to be as familiar with every possible option for obtaining affordable financing for our borrowers and buyers. Because of the new requirements issued by Fannie Mae, Freddie Mac and the private mortgage insurers, every loan officer and realtor needs to know what it takes to get FHA financing for a borrower buying a condominium unit.
Loan officers: it's your business.
Selling agents: knowing will help you market your condo listing to a larger universe of qualified buyers and, if the condo is not eligible, save you the time of having to show a unit to unqualified buyers.
Buyers' agents: the same is true -- no sense in showing someone a condo in a project you know has by-laws containing a right of first refusal. Here's some history and the basics.
Prior to 1996, only condominiums in HUD approved condominium developments were eligible for FHA-insured mortgage financing. Because of all of the red tape involved in getting condo approval, combined with the easy financing terms available earlier this decade, relatively few of those developing or converting condominiums in the last ten years obtained project approval from the HUD. In the Renton WA, for example, a recent search of that zip code on the HUD "condominium lookup" engine revealed serveral approved project . Fortunately -- and I can't be sure whether it was an act of foresight -- in 1996 HUD issued a rule permitting the insurance of loans secured by condominiums in non-approved projects on a "spot approval" basis.
Here's what every loan officer and salesperson needs to know:
To be eligible for spot approval, 1) the project must be complete, 2) it must have been in the hands of the association for at least one year, 3) 51% of the units must be owner-occupied, 4) there can be no legal restrictions on conveyance of a unit, e.g. right of first refusal; 5) the owners association must provide evidence of appropriate insurance, 6) no more than 10% of the units in a project with 30 or more units may secure FHA insured mortgages and no more than 20% in a project with less than 30 units; 7) 90% of the units must have been sold, 8) no single entity may own more than 10% of all units, and 9) the units must be owned in fee simple or an eligible leasehold interest. A copy of the relevant Mortgagee Letter can be found here.
Lonnie Snyder
REALTOR®
Keller Williams Realty Southeast Sound
Phone: 206-406-2710
E-Mail : snyder@kw.com
Website: http://www.callsnyder.com/
Blogsite: http://renton-real-estate.blogspot.com/
Lonnie Snyder is a full time real estate agent and REALTOR® with Keller Williams Realty specializing in Residential Real Estate for buyers and sellers in Washington’s Kent, Renton, Newcastle and South Bellevue.