FHA Condominium Approvals

Presently it is easier to do am FHA Loan on a Condo than on a Fannie Mae or Freddie Mac (Conventional Loan), because of downpayment requirements and Condo Project Reviews.  Early last year Fannie Mae and Freddie Mac announced that they would no longer be keeping a list of approved condo's, and that it would be up to each individual Lender to develope their own list.   This means that each Lender has to not only do a Full Condo Review the first time they do a loan on a Condo Complex, but they aslo have to have all of the Condo Doc's reviewed by an Attorney.  This involves getting a copy of the Condo Packet, along with Insurance and current Budget, this increases the time and cost of approving a loan the first time on a condo complex. Minimum downpayment on Condo's can also be higher than on houses, depending on Private Mortgage Insurance Companies (PMI) requirement.  Many refuse to insure Condo's up to 95% LTV.

FHA however, has maintained the same process that they have had for years. If a condo is on the FHA Approved Condo List, then all that is required is a Limited Condo Review, which basically is just verifying that the Owner to Investor Ratio is not below a 51% Owner Occupied.  If a condo is not on the Approved Condo List it does not mean that you can not do a FHA Loan on it, but that now a Spot Approval is required. This simply means that a Full Condo Review Questionnaire, which consists 22 questions, will have to be completed by the Condo Management Firm, along with providing a copy of the Condo Budget for the current year with Condo Reserves included.

If a Full Condo Review Questionnaire needs to be done, the two questions that seem to be the main obstacle  are:

• Question 13:  Are there any "restrictive covenants" in the legal documents of the association (i.e. right of first refusal or age requirements for owners) which would limit the free transfer of title (FHA will not allow loans to be done if these restrictions exist). 
  
• Question 20:  Are there any legal actions against the association or officers.  (FHA has a No Tolerance Policy in regards to litigation against the Condo Association).

FHA does not require a higher minimum downpayment on condo's then they do on other properties (3.5%), and Closing Costs are the same.

If a Borrower is purchasing a condo and does not have 20% to put down, FHA is always the loan product that I look to first, and in my opinion the simplest to do.

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com