2010 Mar 5th

Why You Might Urge Your Condo Association to get FHA Approval for your Building

Could This Help Get Your Home Sold?moneyhouse

We had a heated discussion on this board about the pros and cons of FHA financing with comment0rs on both sides of the argument making some good points.  Putting aside for a moment the merits of whether there should be FHA financing, let’s take a look at what FHA lending accomplishes.  Many young, first time home-buyers simply don’t have 20% of the purchase price saved to enable them to buy a home.  It is possible under certain circumstances to get a conventional loan with 15% or maybe even 10% down but it’s very tough and you have to have stellar credit and pay PMI (purchase money insurance).  The FHA program lets qualified buyers put down as little at 3.5% and to include closing costs in the loan.  That opens up a whole new universe of buyers.

What Would A Condo Association Have to Do?

To get FHA approval for a building certain conditions must be met and it varies for new construction and pre-existing condos.  Here, I’m talking about a building that’s been around for a while and is fully occupied, not brand new construction.  For example, (and this is just an overview – for specifics, read this)   to the  at least 50% of the units must be owner occupied;  there can’t be more than a 25% of commercial floor space and it has to be “of a nature that’s homogenous with residential use”;  one owner cannot own more than 10% of the condos.  There must be adequate insurance on the building, including flood insurance if it’s in a flood zone.  Basically, the risk of default has to be spread as thinly as possible.  Nonetheless, many condos in Hoboken already may or easily could meet the requirements. Obtaining FHA certification may make the units in those buildings more valuable.  Why, you might wonder?  Because now they are more marketable. Many potential buyers who might not have been able to purchase your unit now can with FHA approval.

How Do you Do It and What Does it Cost?

What you would need to do if you are interested is to have your Condo Board contact a good mortgage lender.  They would help you through the approval process.  According to one lender with whom I do a lot of business, it should cost about $3,000 and take about 6 months or less. Now that might seem expensive but the cost could be spread over all the unit owners since they will all benefit from the approval or, if your association has sufficient funds in reserve, could be paid for with that.  Something to seriously consider in today’s Hoboken real estate market if you wish to increase your ability to sell your condo.

  1. Craig

    I’m glad to see you’ve considered the positives of FHA Lori. Hopefully the new streamlined project approval process that replaced spot approvals eliminates those $3k/6 mo. figures (keep in mind this discussion is about condos – single family homes do not have these conditions for approval). The fact is FHA now insures 40% of all new mortgages. It’s the wave of the future, as conventional loan-required 20% downpayments become out of the reach of more and more people thanks to wages not keeping up with the inflation of housing costs. FHA is nothing more than non-profit mortgage insurance and is self-funded with the insurance premiums it collects. It has never taken a dime of taxpayer money to fund its operation.

    People can debate back and forth about what FHA is and whether it’s good or bad all day. But the one thing that cannot be debated is that if a property you want to sell qualifies for FHA financing, a whole new world of buyers is open to you. Remember that 40% number above. That’s a whole lot of potential buyers to miss out on without FHA approval of your property. So where the FHA debate is concerned, the question is this: do you want to be right – or do you want to get your property sold?

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