I’ve been coming across this issue more and more lately so decided to write this article to address the issue of condo complexes being approved so that would be buyers can use an FHA loan to fund the purchase.
Since condominiums are becoming more popular across the country, I think this information will be helpful to you if you are new to FHA or if you are in need of a refresher on condominium requirements.
There are two types of condominium approvals for FHA:
- Full project review and approval by HUD
- Spot loan review and approval by the lender
To check see if a condo complex is HUD approved for FHA loans the first step would be to determine the name of the condominium project and conduct a search at HUD’s website to see if the project is currently approved. You’ll need to go to https://entp.hud.gov/idapp/html/condlook.cfm where you can search by condo name, condo id, alias name, city, state or zip code.
If the search concludes that the project is not currently approved, your mortgage rep would want to do one of two things:
- Determine if the property is eligible for spot loan review and approval or
- Determine if it’s best to gather project documentation and submit to the HUD Homeownership Center that oversees the jurisdiction of the property for full project review and approval.
For Spot Loan Approval
To proceed with spot loan approval, you would want to refer to Mortgagee Letter 1996-41 which explains spot loan approval requirements. You will find a spot loan questionnaire/checklist attached to ML 96-41. You will need to have an officer of the condominium project’s homeowners association or a representative from the company that oversees and manages the association complete the spot loan questionnaire as early in the process as possible. With the completed spot loan questionnaire, you will need to obtain a copy of the association’s most recent annual budget and you will need to obtain a copy of the certificate of insurance for the subject unit of the project. The association must have appropriate insurance coverage for the common areas and exteriors of the buildings within the project.
Most lenders also require a copy of the condominium declarations and bylaws to be submitted with the questionnaire, annual budget and certificate of insurance for the subject unit. You will want to check the specific lender procedures for spot loan approval because some lenders actually employ their own department for project reviews and approval. Most underwriters are able to determine project acceptability at the same time they underwrite the rest of your credit package but there are a few that differ in their processes. Make sure you’re clear up front on the exact process with the lender of choice.
One thing worth mentioning that you will not find within the Mortgagee Letter or the questionnaire: To be eligible for spot loan approval, the project must consist of no less than four units. This eliminates two unit duplexes and three unit triplexes which have been zoned as condominiums from being eligible for spot approval.
For full project review and approval
For cases where a particular originator has the potential to land a number of deals within the subject project, HUD advises pursuing full project approval. You will find full condominium project requirements at CFR-234.26(i) and also in HUD handbook 4150.1 Chapter 11. Each HUD Homeownership Center has their own specific project review process so you will want to be clear on what to include in your project submission, where to send the documents and to whose attention you need to address the documents.
For more information about purchasing or selling a home call
Marivic GMAC Real Estate
www.MarivicRealty.com
Local: 732-650-9911
Toll Free: 1-866-745-GMAC(4622)
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