November 24, 2014
A reader got in touch recently with a lengthy question, asking:
“Our HOA board is considering revising our declaration dated 4/06/84. Our building was built in 1960 as an 11 story apartment building and transformed into a condo building in 1984. There are 50 units in the building– approximately 27 percent are rental properties. Our building has FHA certification. As units are sold, investors buy them as rental units.”
“We would like to reverse this trend by revising our declaration to state that as units are sold, they are sold as owner occupied units. The revised declaration would provide that owners could obtain a temporary rental permit from the HOA board enabling the owner to rent two years within a five year period. Also new owners must occupy their unit for at least two years before applying for a temporary rental permit. Would we lose FHA certification if we moved to become over time (we estimate 20 to 30 years) an owner occupied building.”
“Would we lose FHA certification by limiting rentals? We feel very strongly that owner occupancy adds to the value of our shared building and our individual units and enhances community. Our board and manager spend a lot of time dealing with rental situations, plus renters don’t have the same investment or dedication to maintenance of the property as owners.”
FHA single-family home loans are intended for owner-occupied residences only and are not permitted for investment properties. The reader’s intent seems to be to make future purchases of condo units in the project to fall in line with the spirit of that notion.
However, FHA condo loan approval rules do require the HOA to refrain from rules that restrict a borrower’s ability to freely sell the property. FHA will not permit loans to condo projects, for example, that have a “right of first refusal” clause in the HOA paperwork.
What this reader proposes may or may not be acceptable in the eyes of the FHA, but state laws would also play a part in whether this is permitted or not. If a condo project has HOA rules that are found to be in violation of state law, could that put the project’s FHA approved status in jeopardy?
That’s for the FHA to determine, not us, and the reader’s best bet is to contact the FHA directly by calling 1-800 CALL FHA to get advice and guidance on this issue.
That the condo project is already FHA approved shows that the HOA bylaws and other areas scrutinized under the FHA program have met with approval. These proposed changes may or may not affect that approval and therefore its best to get information directly from the FHA on agency policy.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for moderation.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: