We’ve reported many new changes to the FHA condo approval process that allows a condominium project to be considered for an FHA loan for individual units. Condo projects must be FHA approved before a borrower can apply for an FHA guaranteed mortgage on a unit in that condo project; that means a project’s compliance with FHA loan rules is very important.
For example, a condo project may not be approved for an FHA mortgage loan if there are restrictions on the borrower’s ability to freely sell the property. The FHA has gone back and forth on an issue related to “the right of first refusal” which limits a borrower’s ability to sell.
Condo loan applicants have reported problems with the right of first refusal clause, getting turned down for FHA and other government-backed loans because of such clauses sometimes found in condo association bylaws or agreements. This is just one example of how an issue with condo owner association bylaws or membership issues can affect an FHA home loan.
FHA condo approval guidelines have been modified to address various issues related to condo owner associations. One of the most recent is the updated policy guidance found below:
“This requirement must be reviewed as part of the analysis for project approval and must also be verified as part of the loan level requirements. No more than 15 percent of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments (does not include late fees or other administrative expenses). The 15 percent includes all units (occupied, investor, bank owned and vacant). There will be no exception requests granted.”
That requirement is something the FHA loan applicant has no control over, but any situation as described above would affect the borrower’s chances of getting an FHA condo loan in that particular project. Sometimes a borrower finds a condo they want to buy in a project that is not currently FHA approved.
This means an approval process must take place before the loan could be considered. These types of procedures can and do happen–it’s not unusual for a condo project to be considered for approval because the borrower wants to purchase there. But if the project does not meet FHA guidelines, it can miss out on being added to the FHA approved list.