Condo ownership possesses unique circumstances that alter the way that FHA financing occurs. In order for a borrower to have an FHA loan on a condo, the condo must have gone through FHA condo approval. Typically, the process is completed when the development is built, but that is not always the case. In order for a condo unit to be eligible for FHA financing, it must be on the FHA list of approved condos. The FHA has a standard list of requirements that must be met in order for a condo to be approved that spans a wide spectrum of topics. The entire process can take between two weeks to three months to complete, depending on the status of the project and the number of requirements that the development already meets. If the condo is not already on the FHA list and the developer is done building the units, the condo association will typically handle the approval process.
The FHA condo approval process can be broken up into several categories, depending on the stage of the condominium project:
- Condominium projects still being proposed
- Condominium developments that are built but less than 1 year old
- Condominium developments that are built but not turned over to the association yet
- Condominium units that have been built for more than 1year and have been turned over to the association
- Condominium units already approved by the VA
- Condominium units already approved by Fannie Mae
The category that the development falls into will help determine its requirements to get approved as well as the length of time it will take to get the process completed.
Proposed Condo Buildings
The category that requires the most work is the condos being built category. Because there is no history of the development, the builder or developer is starting from scratch. The process is best started as early as possible in order to ensure its completion by the time the condos are able to be purchased and closed upon. The documentation/information required includes:
- A completed application for Environmental Review on HUD form 92250
- Complete description of the condo development that includes the number of units, description of the structure, and common areas
- Map of the condo development and surrounding area
- Certificate of Equal Employment Opportunity
- Completed HUD Affirmative Fair Market Housing Plan form
- Statement in writing from the Historic Preservation Office offering acceptance of the project
Once the environmental review is completed, FHA will require further documentation in regards to the construction of the units, as well as the operating budget, any legal documents, and the intended management plan. HUD will review the budget and management propositions to ensure that they are adequate and reasonable. Once all of the above aspects have met with proper approval, the process of conditional approval for sale of the condos with FHA financing can begin. There will be conditions that need to be met during the presale including requirements for owner occupancy as well as the need to provide the site survey and proof of a minimum one-year warranty against any builder defects or defaults.
Condos Built for Less than One Year
Condos that are under construction or have been in existence for less than one year will undergo a similar process with a few less requirements. The main difference with FHA financing for condos in existence for less than one year is the maximum LTV that is allowed. If there is not a minimum ten-year warranty in place, the maximum LTV is 90% for FHA financing. This differs from standard FHA financing which typically only requires 3.5% down as opposed to 10% down, so it is important to understand this when shopping for a condo. The stipulations that must be met in order to obtain a condo that is built for less than one year includes:
- Written request for approval that contains the description of the condo development along with the number of units it will contain and the types of common areas
- Map of the area
- Schedule of condo development
- Legal documents for the condo drawn up by an attorney
- The proposed budget for the association
- The proposed management plan for the development
- Current status of the development’s finances and reserves
- Proof of previous association meetings if they occurred
Upon receipt of the appropriate documents, the Field Office will conduct inspections to determine the eligibility of the condo development. If the units pass inspection, appraisals will be necessary to complete the process.
Condos Built but not Turned Over to the Association
Condo developments that are done building yet still have units that were not sold might not have been turned over to the association yet. These developments can receive FHA condo approval as long as they meet a few addition requirements, in addition to the standard requirements from above.
- All building of units must be completed; there cannot be any plans for future expansion; if future expansion is possible, the developer will need to go through the condos built for less than a year process
- Provide concrete evidence that the project is completed
- Provide evidence of a solid budget
- Provide the management agreement
Another difference for condos that are built, but not yet turned over is the ability for buyers to get maximum financing from the FHA. This means that 97.5% LTVs are acceptable as long as the construction is complete and the development passes the FHA requirements.
Existing Condo Developments
Existing condo developments applying for FHA condo approval are those that have been built and completed for more than one year. The association’s control is not under the developer’s responsibility any longer and the homeowners are now in charge of the association. The association has the ability to request FHA approval and will submit the following documents.
- Written request for FHA approval
- Any legal documents pertaining to the development
- Recorded survey or plat
- Detailed description of the income, expenses, and reserves of the association
- Minutes from the last two association meetings
- Certification from the association itself that a minimum of 51% of the units are owner occupied
- Proof that there are no construction defects
- Proof that there is no outstanding litigation from unit owners against the development
Condo Developments Approved by the VA
If the condo development has been previously approved for VA funding, obtaining FHA condo approval is rather simple and much less complicated than any of the above situations. The following items must be provided to ensure approval by the FHA:
- Approval letter from the VA
- Copies of any legal documents that have been recorded
- Recorded plat and survey
- Proposed or existing budget
- Minutes from any association meetings
- Undergo an onsite visit in order to ensure the sustainability of the project
- Proof of owner occupancy in at least 51% of the units
Condo Developments Approved by Fannie Mae
FHA condo approval of condos already approved by Fannie Mae is very simple. The only documents required are the FNMA Form 1026 Application or FNMA Form 1027 Conditional Project Acceptance along with any supporting documentation that rendered your approval. Typically, an on-site review will also be performed to ensure satisfaction of HUD’s requirements for FHA condo approval.
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