Condo Media - July 2014 - 45

by Ed Hofeller
and Mark Sheingold

ue to the mortgage debacle,
residential loans typically
require a 20 percent down payment. FHA loans only require
a 3.5 percent down payment. This is
among the lowest, if not the lowest, of
any loan program available. In addition,
FHA loans are assumable. This means
that an FHA loan can be assumed by a
new buyer. The new buyer will get the
same interest rate. With interest rates
near historical lows, this can help a condominium association a lot.
For these reasons, the amount of
FHA loans has proliferated to the point
where between 30 percent and 60 percent of residential loans are FHA loans.
If a condominium is not FHA approved,
you may be limiting the pool of potential buyers to the units in your complex.
Here are some FAQs:

How long does the FHA
approval process take?

On average, it takes 30 to 60 days.
However, if there are extenuating
circumstances, the process could take
longer for some condo associations.

How long does
FHA approval last?

Condo communities will need to reapply for approval every two years.

What does it cost
to get FHA approval?

We have seen estimates that range from
$3,000 to $6,000 but have also seen
companies that advertise that you pay a
lower flat fee, and if you are not approved, you pay nothing.

What are some of the
requirements needed
to get FHA approval?

1. No more than 15 percent of the units
can be more than 60 days past due
on condo payments.
2. Ten percent of the budget must be
funded for replacement reserves for

capital expenditures and deferred
maintenance.
3. At least 50 percent of the units must
be owner occupied.
4. No more than 25 percent of the
properties total floor area can be
used for commercial/nonresidential
use, although the FHA may make an
exception up to 35 percent.
5. The budget must contain a line item
that gives adequate funding for insurance coverage and for deductibles.

What are some of the
documents required?

1. Legal documents
a. Condominium documents
2. Financial documents
a. Recent balance sheet and income
statement
b. Current budget
c. Prior year-end financial statements
3. Insurance
a. Insurance policy declaration page
b. Fidelity bond declaration page
(employee dishonesty policy)
4. Additional documents
a. Signed management agreement
b. Owner listing, showing bill to
address, plus unit number

What are some of the myths
about FHA condo approval?

Myth: Being FHA certified attracts
low-income buyers.
This is not correct. FHA condo approval is not related to affordable
housing programs. The FHA can
insure loans up to $800,000 in some
areas. Also, although the down payment is lower, there are credit score
requirements, income verifications,
and debt-to-income ratio requirements.
Myth: FHA loans were one of the
causes of the financial crisis.
Although there was not one cause, subprime loans were a major contributing
factor, not FHA loans.

Myth: The guidelines are so strict
that it is too expensive to become
FHA approved.
If your association is well managed and
is in good financial condition, then it
should be easy to become FHA approved. There are companies that specialize in FHA approval, thereby making
the cost more affordable.

Should all associations
apply for FHA approval?

Not in our opinion. There are certain
criteria, such as no more than 50 percent investor ownership and no more
than 15 percent of units being 60 days
delinquent on condo fees. If you don't
meet the basic requirements, applying is
an exercise in futility.

Where can I learn more
about FHA approval?

The FHA has a condominium project approval and processing guide at:
http://search.usa.gov/search?affil
iate=housingandurbandevelopmen
t&query=Condominium+project+a
nd+Approval+Guide. Keep in mind
that it is possible that the laws can
change before the FHA handbook is
updated.

Conclusion

In our opinion, if you meet the qualifications to become FHA approved, then
by not doing so, you could be decreasing the amount of potential buyers by
between 30 percent and 60 percent.
Therefore, if the condominium association is qualified, we recommend that the
association consider applying. CM
Ed Hofeller is the founder and
president of Hofeller Management.
He has an MBA degree and an AMS
designation from CAI. Mark Sheingold works at Hofeller Management
as an assistant property manager and
has obtained his CPM, RPA, and CPO
designations.
Condo Media * July 2014

http://search.usa.gov/search?affiliate=housingandurbandevelopment&query=Condominium+project+and+Approval+Guide

Condo Media - July 2014

Table of Contents for the Digital Edition of Condo Media - July 2014