The top real estate agents have some reminders for you about FHA approval for condominium properties. Remember that FHA loans are a popular mortgage option for home buyers today. But borrowers can only use it to purchase FHA-approved properties. That’s why homeowners and condominium HOAs should aim for FHA approval right away.
Now, what should you learn about FHA approval? Why should condo HOAs and sellers aim for it, and what are its benefits? Why should home buyers seek FHA-approved condo units? Moreover, how does FHA approval go for condominiums?
Understand these and some other points in this guide.
What the Top Real Estate Agents Say about FHA Approval for Condominiums
To learn FHA approval, you should understand how FHA loans work for buyers first.
The Federal Housing Administration offers mortgage loans on sweet deals for buyers. It is known for its fantastic down payment deals, which can be as low as 3.5% of the purchase price. That’s significantly lower than the usual 20% down payment that conventional mortgages impose.
Note, however, that the FHA loan requires buyers to pay for mortgage insurance. That is 1.7% upfront cost and an annual payment of 0.45% to 1.05%.
When talking about credit scores, a buyer can enjoy a 3.5% down payment when they have 580 points. That’s something that many buyers love about FHA loans. However, buyers should prepare for 10% down payments or higher when they have 500 to 579 credit scores.
Now, here’s the thing that the top real estate agents want you to remember about FHA condo approval. The FHA requires buyers to purchase properties that have passed the FHA standards. That refers to FHA-approved properties.
Such requirement is there to make sure that borrowers are getting quality homes that are worth the cash. That covers single-family homes, apartments, and condominium units, among other property types.
Why Condominiums should Get FHA Approval
As discussed earlier, the FHA mortgage loan sure is enticing for buyers because of its perks. And that is the main reason why condominiums should get FHA approval too.
You can further understand such a point with these perks that FHA approval brings to a condo:
1. Sell to a Bigger Market
Around 60% of home buyers carry FHA mortgage loans in the market today. Now, remember that FHA loan borrowers need to find FHA-approved properties to purchase. That means setting the FHA approval aside pushes such 60% of buyers away from you, leaving only a mere 40%.
Although, the numbers can significantly vary when you’re in a hot seller’s market. Chances are, it would be easy for you to end up with a few buyers that carry conventional mortgages. However, this doesn’t mean that FHA borrowers would still chase after sellers who have unapproved properties.
2. Maximize Home Value
Remember that FHA has a set of fixed standards for approving properties. So when you’re condominium is approved, it means that the property has passed the bars of the FHA.
That’s how FHA approval pumps the value of each unit in a condominium. Same reason why the top real estate agents tell condominium HOAs to move towards FHA approval.
In addition, FHA approval compels HOAs to maintain or pump the value of the condominium too. After all, FHA approval expires in three years, and the HOA in a condominium property needs to move for renewal. And to pass through the renewal process, the property should satisfy the requirements and standards of FHA.
FHA wants to make sure that a property stays in top-notch condition after a few years.
3. Required for Reverse Mortgages
FHA approval is a requirement for homeowners who want to apply for a reverse mortgage. A reverse mortgage is tapping the equity of a property, which means knowing the current value of a condo unit is crucial.
Note that you can pump the value of your equity by paying more of your mortgage or when your home value increases. The first situation is easier to do when you’re a good payer. The thing is, how can you pump the value of your condominium unit to increase your equity?
Go back to how FHA approval maintains or pumps the value of a property. It shows that getting FHA approval puts you at a great advantage when tapping your equity as well.
Of course, homeowners love such home equity benefits. That’s why many buyers seek for FHA-approved condos for a smoother reverse mortgage application later on.
4. Ensure the Condominium Community is Well-Funded
The top real estate agents remind you that it is essential to make sure that you’re living in a well-funded condominium community. Why? Because it keeps you at peace when mishaps happen, such as fire breakouts or earthquakes.
That’s aside from the fact that you can expect to see further developments in the vicinity as well.
Now, FHA certification can help you make sure that your condominium community has enough funds for different vital expenses. That is because the approval process requires at least 85% of all condo units to be current with payments and charges. Moreover, the community should have the correct insurance, and 10% of all the budget must stay in the reserve.
5. Smoother Selling Process
Sellers of units in FHA-approved condominiums generally have smooth experiences in the market. That is because of the benefits that FHA approval brings to condo unit owners and buyers. Thus more buyers want to buy such units.
Listing such units is easy as well since buyer’s agents favor FHA-approved properties for their clients. Some buyers even waive contingencies to make stronger offers. They’re confident enough with the FHA standards, after all.
As a bonus, the FHA loan is assumable. That means the buyer can shoulder an outstanding FHA mortgage from the seller. This is another reason that makes FHA loans attractive for buyers and sellers.
How to Get FHA Approval for Condominiums
After knowing the benefits of FHA approval for condominiums, you should start thinking about aiming for such certification. Here are a few essential notes to remember from the top real estate agents:
1. The HOA Board Members Should Make a Move
If you’re an HOA board member in a condominium community, then bring talk about FHA approval in a meeting with your peers. Tell them the benefits of such a certification, then convince them to get approved.
The thing is, it is somehow difficult when you’re just a condo unit owner. You’re lucky if you have a great HOA board that truly listens to the community. However, if you have a problematic HOA board, then you should carefully plan about convincing them.
2. Requirements for FHA Approval
The requirements for condominium FHA certifications are strict. However, these are all essential to make sure that you’re condominium is in top-notch condition.
- A condominium property with one to nine units can only have two FHA-approved units. Whereas 10% of all units in a condominium with 10 or more units can seek approval.
- 50% of all units in a condominium property must be occupied by their owners.
- 85% or more individual units must remain up-to-date with their payments and charges.
- The condominium must keep at least 10% of its budget in financial reserve.
- The condominium property must have ideal insurance policies.
- The commercial space in the property must not exceed 35% of its total space.
Now, here are the necessary documents:
- Record of covenants, terms and conditions, and restrictions
- Articles of incorporation
- Signed adopted bylaws
- Income statement and balance records
- Up-to-date budget records
- Previous year income or audit records
- All active insurance policies
- Fidelity bond declaration
- List of rented units
- Signed company management contract
The top real estate agents suggest that you should prepare these documents beforehand for a smooth approval process. Moreover, be sure that your condominium property has all it takes to pass.
3. Costs for FHA Approval
Prepare for the approval process costs as well. Don’t worry since the FHA certification is an affordable process.
- Prepare $1500 for a new condominium building that is less than a year old.
- Approving an older condominium property that hasn’t been approved costs $850.
- Renewing a certification that has expired within the last six months costs $765.
- Active condominium certifications that are running for renewal should prepare $765.
- Renewing a certifications that has expired for more than six months prior costs $850.
4. Determining if Your Condo is FHA-Approved
You’re not sure about the FHA approval status of your condo? You can check it in the HUD website easily. There you can find a complete list of approved condo projects as well as those that have lapsed for renewal.
Keep these FHA Condo Approval Notes from the Top Real Estate Agents!
Getting your condo FHA-approved brings huge benefits for you as an owner or a seller. That is why you should determine if you’re living in an FHA-certified condo or not. If you find yourself in the latter situation, remember the steps above to begin the process. Of course, talk with the top real estate agents for further guides for FHA approval.