2010 May 2nd

Why Getting your Hoboken Condo FHA Approval Will Help You Sell

Who Has 20% to Put Down?

Very few first time buyers are able to come up with the $60,000 + needed for a typical downpayment on a Hoboken condo.   FHA Spot Approvals are no longer an option.  So what is a seller to do?  Simple – get your building FHA approved!

Getting a building FHA approved is a simple process with as fast as a 7 day turnaround time, depending on the bank.FHA Approval Seal

Here are the typical questions the bank will ask.  Of course, there is more detail in the actual application:

  1. Is the Flood Insurance Coverage equal to the Building Coverage?
  2. Are at least 50% of the units owner occupied?
  3. If there is commercial space in the building does the square footage take up over 25% of the building’s total square footage?
  4. Does the budget have a line item to collect maintenance reserves (10% of the budget minimum)?
  5. Is the association a plaintiff in any litigation?
  6. Does any single entity own more than 10% of the units?
    • For projects with under 20 units does any single entity own more than 1 unit?

If the answers are acceptable, this building is likely to be eligible to get FHA approval.   You can now sell your condo to buyers who have as little as 3.5% to put down.  That opens up a whole new universe of potential buyers.  If I were a seller I would RUN to my condo board to get this done.  The cost is minimal and the benefits great.

  1. Morally_Right

    I don’t think it’s responsible to advocate this. Why would you want to set up people to fail? If a buyer cannot come up with the 20%, then in all likelihood, he/she should not be buying.

    You might also be setting yourself up to get sued one day. I know everyone has to put food on their table, but setting up others to fail, just like some investment banks have done, is a threshold a good human being doesn’t cross.

  2. Lori

    I’m sorry – I can get sued because I inform condo owners of an entirely legal program established by the Federal government? I sincerely hope you’re not an attorney.

  3. Morally_Right

    No, I am not an attorney. I’m just someone that doesn’t want to see people get hurt, like millions have in other parts of the country and are now homeless.

  4. TS


    Your name might more suitably be “Morally_Confused”.
    I’m not sure how you get that Lori is setting people up to fail because she is telling *sellers* to get FHA approval.

  5. teaorcoffee

    Morally, you don’t think it’s “responsible” to advocate this?

    I would think that a “responsible” attitude would be one where people actually take RESPONSIBILITY for their own actions, rather than blame any issues on someone else “setting them up to fail.”

    Excluding people who lost their homes because of job loss, anyone who is “now homeless” needs to accept responsibility that they had a hand in their own demise. If you’re not “responsible” enough to read the fine print, not “responsible” enough to realize that if someone is offering you free money that eventually the other shoe is going to drop, or not “responsible” enough to figure out that you shouldn’t be buying a $600K house on a $30K salary…well, that is YOUR problem, not someone else’s.

  6. Craig

    Now all of a sudden there’s acknowledgment of the reality that few first time buyers have $60-$120k in cash for downpayments, and encouragement for FHA on this blog? An interesting change of position.

    @Morally_Right – the typical 2 bedroom condo in Hoboken is $500k-$600k and you won’t find a 1 bedroom for less than $300k. That means you need as much as $60k-$100k or more in cash to put down 20%. Do you honestly believe that most people who have never owned a home before, don’t get Wall St. bonuses, and don’t rely on mommy and daddy, have that kind of cash on hand? Just because someone doesn’t have loads of cash up front doesn’t mean they are cash poor on a monthly basis. The fact is with current prices and interest rates, by buying and putting down as little as 5%, the monthly carrying charges are nearly the same as it would cost to rent a similar unit after all the tax deductions. Anyone paying $3k a month to live in an Applied Housing 2br rental can afford to buy something similar with less than 20% down. They’ll be shelling out the same payment monthly.

  7. Confused

    What I think Morally Right is trying to say is that this is a set up for taxpayers. People who put down that small amount of money have no incentive to stay if they end up under water.

    This is a sham of a program and odds are the 50% of the country that pays taxes will end up suffering.

    Why is the minimum so low? It should be at least 10%, in my opinion.

    Craig – I’m not keeping score, but I am fairly certain this is not the first time that anyone on this blog has supported or advocated for FHA loans.

  8. Craig

    @Confused – Do you honestly believe that all of the people who have already bailed on their underwater mortgages were those who put down less than 20%? I’ve got news for you, most of the many defaults in this country were on conventional loans. FHA insures a small minority of all loans written in this country.

    As a federal labor attorney who represents employees of these agencies, I’m confident that I’m more of an expert on how federal agencies operate than anyone on this blog. That said, much like the SEC and FDIC, FHA is a federal agency that is self-funded and has never used appropriated funds. It is not set up to cost a single taxpayer a dime. Until you can cite facts stating otherwise, your opinion that it is a sham program that will affect 50% of all taxpayers is based on pure conjecture. FDIC and FHA serve very similar purposes – they provide gov’t insurance for things banks otherwise wouldn’t insure. Funny how many here don’t want the gov’t insuring mortgages, but I bet you all like it insuring your money and aren’t too concerned about any potential taxpayer cost for that.

  9. homeboken

    Craig there is quite a differnece between insuring cash deposits (FDIC) and insuring debt against an asset that has market and interest rate risk (FHA).

  10. bill

    Homeboken, FDIC doesn’t insure against cash deposits becoming worthless….it insures against banks becoming insolvent….big difference.

    Banks have market risk and interest rate risk in spades

  11. Lori Turoff

    My goal is to provide information to my readers. I may have my own opinion as to whether FHA loans and similar programs are a good or bad thing but the fact remains that a building with FHA approval can attract a larger audience of potential buyers than one without it.

    Are VA loans inherently bad? Then enable military buyers to buy with no money down.

    I’d also be very curious to know the actual default rates on FHA vs. conventional mortgages. There is an assumption made by some that FHA borrowers have a higher default rate but can anyone establish that with some evidence or statistics? My guess, and this is just a guess, is that the highest default / short sale rate is among non-owner occupier investors.

  12. fha buyer

    To be honest though, getting the condo FHA approved on the buyers end was not terribly challenging, but it would’ve certainly helped had the seller already gone through the process. I purchased a home as with an FHA approved loan. And, for the record it was a one-bedroom less than $300k in Hoboken. While I did have the 20% to put down, with the volitile market I did not want to risk putting my life savings down on a condo in the event of loss of job, financial emergency etc. There was a point in time where banks were offering 100% financing, those were the days of setting people up to fail. At least the govt requires 3.5% down. In my opinon the FHA loan is a great way for first time home buyers to buy comfortably and be finanically responsible in the event of unexpected finanical troubles so one could avoid forclosure.

  13. carl

    Is a federal labor attorney basically a union lawyer?

  14. Hinova

    I am not sure how the size of the down payment sets people up “to fail.”
    The ability to make mortgage payments are dependent on one’s income not the down payment.
    On the contrary, if one has kept the down payment to a minimum then perhaps they can tap into the unused funds to wait out the bad times and thus “not fail”

  15. Hinova

    I do however agree that taxpayers shouldn’t be on the hook for the mortgages.

  16. Another Opinion

    In my opinion, you cannot only look at buying a home from a monthly perspective. It great if someone can afford $5K / month for a mortgage, but as soon as things don’t go to plan, how quickly are you going to run out of your $5k in reserves before you need to tap that 401K or put the house back to the bank?

    Fiscal conservatism would say you need a minimum of 3 months cash on hand (ideally 6-12 months), and then save for that down payment. I am encouraged to hear that some people realize this (fha buyer), but it should not be used as a reason to put down less money on your house. The down pmt number should be an independent decision, based on your reserves plus other potential uses you may have for the cash. However, in any case I do not believe the down payment amount should be less than 10% (agree with Confused) to properly incentivize homeowners and not shift risk to the lenders.

    Whether we are talking about residential subprime or FHA loans, the commercial real estate market or the corporate leveraged lending markets, there is one common theme: OVER Leverage. No one wants to buy a house and wake up the next morning to find out they are underwater. Real estate is able to be levered more highly than a business or other fixed assets because its values are thought to be stable with little risk. The past two years has proved that wrong; hence banks requiring more money down to protect the value of the dollars lent from 10-20% swings in the value of a property. If you buy a home with 0-5% down, you are really treating your home purchase like a married put option. If the value goes up, great, I make some money with just the minimal option cost. And if the property losses value, they just put it back to the bank and all you lose is a minimal option value and transaction costs.

    What infuriates me is everyone whining over Goldman and the big banks making money off speculation, when that is effectively what FHA and others are doing when putting virtually nothing down. If homeowners are effectively both going long and shorting their own investments, why can’t banks follow suit? Bottom line: Is it smart to over-lever and speculate on your home purchase – NO, but as long as the government condones it (just as with banks) people will do it anyway.

  17. homeboken

    I think of it more as a cheap call option for the home-buyer, with the bank and FHA insurer as the writer of that call.

    Put down 3.5% (17.5k on a 500k home). If the value goes up, horray for the owner. If it goes down, owner stops paying the mortgage and probably recoups the full down-payment amount by living rent/mortgage free for at least 6 months while the bank gets it’s act together. An FHA buyer has shifted all downside exposure greater than 3.5% to the FHA.

    It’s all a recipe for disaster that will be served directly to the tax-payers. For the 50 years previous to 2000 mortgage lending had some pretty conservative rules, meant to protect the banks. 20% down payments, 3.5 x income multiples, etc. Now in an effort to keep prices propped up, we continue to roll out cheap financing and gimmicky lending programs.

  18. Lori Turoff

    Where is the evidence that FHA borrowers are defaulting at a rate higher than conventional lenders???

  19. homeboken

    I never claimed that they were defaulting at a higher rate.

    Even if they default with the exact same frequency as a convetional borrower, the effect more damaging.

    Buyer A – Put down $100,000 and bought her half million home. She defaults, the bank is out 400,000

    Buer B – Put down $17,500 and bought his half million home. He defaults, the bank is out 482,500.

    Having said all that, i don’t think it needs to be deabated that an owner with $100,000 at risk is much less likely to walk away than an owner with $17,500 at risk.

  20. curious

    the first link states that FHA loands that are 90+ days delinquent dropped to 8.8% in March. The second is from FNMA that shows that as of Feb, their delinquency rate is 5.52%.



  21. bill

    “Having said all that, i don’t think it needs to be deabated that an owner with $100,000 at risk is much less likely to walk away than an owner with $17,500 at risk.”

    of all defaults…how may are of the calculated default aka “walk away” nature?

  22. homeboken

    “of all defaults…how may are of the calculated default aka “walk away” nature?”

    I have no clue, but what difference does it make? The impact of the default is greater the lower the downpayment, who cares about motivation.

    If we all wish to operate under the assumptions that real estate values can only go up and buyers will no longer have to face the possibility of being underwater, then the downpayment makes no difference.

    I am making my own assumptions that those folks putting down 3.5% have at the very least considered the impact of what happens if things go south. The walk away option is real, I contend that a buyer putting down 3.5% has considred strategic default as one of the exit strategies. Of course, he would like to avoid this, but not at all costs.

  23. Craig

    “My goal is to provide information to my readers. I may have my own opinion as to whether FHA loans and similar programs are a good or bad thing but the fact remains that a building with FHA approval can attract a larger audience of potential buyers than one without it.” – Lori

    A fair point. But one can’t help but appreciate the irony of you saying that if you were a seller you’d run to the federal agency you personally disdain to get its approval, thus making the property for sale more marketable. I guess when personal opinion and the bottom line conflict, we know which wins.

    “Is a federal labor attorney basically a union lawyer?” – Carl

    Not necessarily. Federal agencies and federal unions might both have their own in-house lawyers or hire private firms to handle their labor matters.

    “It’s all a recipe for disaster that will be served directly to the tax-payers.” – Homeboken

    How exactly is FHA more of a risk to taxpayers than conventional loans? It was defaults on conventional loans that caused banks to be bailed out by taxpayers during the subprime mortgage crisis. FHA has never needed a bailout with public funds because it pays for itself. Those are the indisputable facts. You speak of FHA costing taxpayers in terms of conjecture, yet have no facts to support your theory. You as a taxpayer have already paid to bail out banks for writing bad conventional loans. I’d worry about that cost to the taxpayer more than FHA if I were you.

  24. Lori

    Give me a break, Craig. First of all, I never said I “distain” the FHA. You are putting words into my mouth. I recognize there have been and still are problems not just with the FHA but with the mortgage industry as a whole. That doesn’t change the fact that I didn’t make the laws – our legislators did. I’m a realtor – that’s never been a secret, yet I don’t sell any real estate on this blog (unlike almost every other realtor website or “blog”). I try to do the community a service by providing information. Just because the information and the current state of the law may not be in 100% accord with my own personal beliefs does not mean I shouldn’t share the info or let sellers know what will help them sell their properties. Isn’t stimulating the housing market and overall economy a good thing?

  25. Hal

    I agree with fha buyer. I will be purchasing in the next 6 months and want to look into FHA. I have the 20% down, but would rather keep that extra cash stashed “just in case”.

    Where do you find a good list of banks that do FHA loans? Not the broker lists that are on the fha website.

    Also, does FHA have something similar like PMI, that once you hit a certain equity amount, the insurance drops. I know it is a little stricter then PMI which I think drops off at 78 or 80%. Thanks!

  26. Craig

    Lori, I didn’t put words in your mouth by using an exact quote. I simply recalled what your views on FHA were in an older thread where you made it clear that you weren’t a fan. To be clear, the work that you do on this blog is appreciated, especially in light of the fact that you don’t profit from you efforts here.

    @Hal – Wells Fargo and Bank of America are two well-known banks that are approved FHA lenders. I advise going to both of them and have them compete for your business. FHA does not have PMI because it’s public. It has MIP (mortgage insurance premium), which is essentially the same thing, put priced slightly lower. Plus you pay an additional up front mortgage insurance premium in a lump sum at closing that is a percentage of the total loan balance. Unlike PMI, MIP only ends when you have 20% in paid equity – it doesn’t end if the equity was gained merely through appreciation. In that sense it is stricter than PMI.

  27. homeboken

    Craig – You don’t seem to understand my point. An FHA default will always be more damaging to the bank/insurere/tx payer/economy since the property in question is leveraged at a higher rate.

    I am not debating that FHA borrowers default more than conventional borrowers. My only stated fact is this : FHA borrowers is leveraging their downpayment on average 28 times. A convention borrower is leveraging 5 times. Therfore the risk and default impact is greater with an FHA borrower. That is a fact.

  28. Lori Turoff

    Thanks Craig. I’m not a fan, personally. That doesn’t matter much, though, to the people out there trying to sell.

    An FHA default compared to a conventional loan default may be “more damaging” on an individual basis but what about in the aggregate? Wouldn’t you need to know the comparative default rates?

    Anyway – I’m leaving for vacation and will try to post when I have internet access. Maybe you guys can sort this all out and solve our financial problems while I’m away. After that, you can start thinking of ways to curb the oil flow 😉
    Thanks for your always lively discussions!

  29. TS

    Another Opinion said: “What infuriates me is everyone whining over Goldman and the big banks making money off speculation”

    Anyone who has a legitimate complaint against the banks is NOT complaining about this. They’re complaining about a host of other things – front-running, conflict of interest between market making and prop books, bailouts when speculation goes bad (not speculation itself when it makes money), etc.

  30. homeboken

    Here is a link to some data directly from the FHA, via the Washington Post:


    Summary –
    12/31/08 – 6.5% of all FHA loans in default (>90 days delinquent.

    12/31/09 – 9.1% in default.

    Statistics for 2010 are not available, at least during my quick google search.

  31. Craig

    “Craig – You don’t seem to understand my point. An FHA default will always be more damaging to the bank/insurere/tx payer/economy since the property in question is leveraged at a higher rate.” – homeboken

    Again, your position is based on incorrect facts. Perhaps you are unaware of the tens of thousands of conventional 100% financing loans, 80-20 loans, and 80-10-10 loans (some with no income documentation required) handed out by banks. The later 2 products were created specifically to avoid PMI, thus leaving the loans uninsured.

    Those conventional loan products with 0 downpayment have property leveraged far more than those who put the minimum 3.5% down required by FHA. So how do you figure FHA defaults are always more damaging when it’s products like these uninsured no downpayment conventional loans that actually caused bank failures? Taxpayers have already paid to bail banks out for those uninsured conventional loan defaults, but have paid nothing towards FHA defaults. Not one bank has failed because of FHA defaults. Those are the facts.

  32. curious

    Taylor, Bean & Whitaker (TBW) was an FHA bank that failed because of FHA defaults because it had looser lending standards. Estimates are that it cost the FHA $800-900 million.


  33. homeboken

    Craig – you are trying to argue semantics, which is to be expected from an attorney. It isn’t my job to win a case, I am presenting an alternate view to your’s on a blog, so calm down with your rhetoric.

    The basis of my arguement is referencing loans that are currently avaialble in the marektplace, ie FHA 3.5% down vs conventional bank loans with 20% down.

    The lending terms that were avaialble in the last decade will likely never be available again in our lifetime. I agree that any loan made by a conventional lender with unconventional terms (sub-prime, alt-a, no income doc etc) is a non-conventional loan.

    I will go no further with this topic, you clearly have a bias since, under your own admission, you represent these agencies as a career. I will close with only this quote from the above posted Washington Post article:

    “Although the FHA’s default rate has been climbing for months and eating into the agency’s cash, the latest figures show that the FHA’s woes are getting worse even as the housing market shows signs of improvement. The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made.

    If the trend continues and the FHA’s cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses — a first for the agency, which has always used the fees it charges borrowers to pay for its losses.”

  34. whynot

    homeboken is taking his ball and going home! ha ha – notice how he had to have the last word?

  35. carl

    Craig– Ok so do you represent mostly unions or not

  36. homeboken

    Ha, whynot, I said I wouldn’t post anymore debating my side, I will still read all the posts and think about what is being said. In other words, my ball is still here, just watching from the side-lines while the game continues

  37. boken

    Anyone try the new pierogi truck? 🙂

  38. Craig

    @curious – Taylor, Bean & Whitaker didn’t fail. They were a shady and corrupt predatory lender that had their FHA lender approval suspended. Rather than appealing their suspension within a 30 day deadline, they closed their mortgage operations exactly 1 day after their time to appeal expired and 2 days after the FBI raided their offices.

    @homeboken – I’m not arguing semantics, I’m arguing facts. Your argument is the conjecture that FHA loans may one day harm taxpayers. Mine is that conventional loans already have. FYI, a conventional loan is defined as a residential mortgage loan, usually from a bank or savings and loan association, with a fixed rate and term that is repayable in fixed monthly payments over a period usually 30 years or less, secured by real property, and not insured by the Federal Housing Administration or guaranteed by the Veterans Administration.

    As you can see any loan product that has a fixed rate and term and is not insured by FHA or the VA is conventional. I have no bias towards federal agencies and I am not a federal employee. Quite the opposite. I am against the agencies in litigation, I do not represent them. FHA’s losses from those 2007, 2008 mortgages stems from predatory lenders such as the aforementioned Taylor, Bean & Whitaker. They have since eliminated approval of all such lenders.

    @Carl – I am in house for a Union, mostly representing employees of agencies like IRS, SEC, and FDIC. FHA is not among those agencies I deal with.

  39. curious

    craig – FHA is still on the hook for all of the bad loans that TBW made. that is my concern. for the record, i am against any mortgage where the borrower needs to put down only 3.5%. i’m against it whether it be FHA or conventional. the biggest driver of default is negative equity. a borrower that puts only 3.5% down is much more likely to default should their property decline in value since they will incur negative equity much faster than someone that puts 20% down.

  40. Lori

    Is there really a pierogi truck??? I’m a Cinnamon Snail customer but my husband would live on Pierogi’s while I am away if he could.

    BTW – I agree with the ‘negative equity’ argument. If you don’t have any skin in the game it’s too easy to bail. The type of loan doesn’t matter much. Buyers saying they have to do 3.5% down so they have a nest egg if things go south probably shouldn’t be buying.

  41. Craig

    Curious – You are correct. But that’s why I said TBW didn’t fail because of FHA – FHA covered their losses. And it was because of lenders like them in that brief period that losses were endured by FHA that were way above historic levels. I can certainly respect the reasoning of your opinion since it doesn’t single out any particular entity, but rather a certain lending standard regardless of who offers it. Truth be told, I’m not sure I’m a big fan of 3.5% minimum down either unless it’s a loan for $200k or less. Above that, I’d probably make 5% the minimum if it were up to me. FHA is raising the minimum to 10% for higher risk borrowers.

    That said, I’m not sure the biggest driver of default is negative equity. I think it’s the fact that some people simply can’t make the payments because of loss of income. I also think investors that bought property as profit-making investments are bigger drivers of default. For example, speculators are the cause of all the short sales in Sky Club. No one has less skin in the game than someone who doesn’t depend on the property as their own shelter.

  42. boken


    Enjoy! 🙂


  43. teaorcoffee

    Word on the street is that someone from Lua put up a major stink yesterday about the Pierogi truck being there.

    I know I often have to make the decision of whether I want to get take-out food from a food truck versus a fancy/pricey dinner at a loungy-type club that appeared in an episode of Housewives of New Jersey.

  44. Tiger

    Really? Lua was in Housewives of New Jersey?

    Ok, blacklisted. (never cared much for Lua to begin with, especially the dude standing in the men’s room to hand you a towel, I hate it when they do that).

  45. whynot

    Tiger – Don’t you have a white shag carpet? I thought you would just love Lua and the man in the bathroom!?! 😉

  46. patk14

    The FHA, a politically motivated government agency, stepped into the void after Fannie Mae/Freddie Mac entered receivership (Craig, I guess those quasi-government agencies didn’t cost the US taxpayer more than the AIG fiasco, now did they? What’s the number $200 billion?). The fed govt feared that with Fannie Mae/Freddie Mac bankrupt due to their insuring huge amounts of poorly underwritten mortgages, that the housing market would go into free fall. No private institution would provide or insure mortgages on those terms at that point in the financial collapse. The more loans that the FHA insures, the more premiums they collect. So, by racheting up their lending/insuring during 2007 and 2008 (when defaults were rising) it became ponzi-like. Growing their exposure so quickly in a bad market will cost the US taxpayers billions when all is said and done. I guarantee it. Fannie Mae and Freddie Mac were saying how profitable they were right up to their bankruptcy. 3.5% down is poor underwriting and will cause massive defaults if the real estate market doesn’t climb. People will no equity abandon their properties. That has been proven time and again. Did we learn nothing from this crisis? The real estate bubble was based upon the thought that prices never decline.

    I don’t blame anyone for taking advantage of a govt program. Why not? The problem is the govt should not be transferring taxpayer money to sellers of homes. The ease of mortgages increased demand which increased prices. All benefit of mortgage subsidies accrues to the seller not the buyer. Simple econ 101.

  47. boughtw100%financing

    I purchased my home in Hoboken with 100% financing, three years ago. It was the WORST MISTAKE OF MY LIFE. Truly. I was young, inexperienced, and basically knew absolutely nothing about real estate. All I knew was that we could afford the monthly payment and that’s all I thought mattered. Now here I am 3 years later having wasted SO MUCH MONEY on interest because I have this ridiculous monthly payment yet am only getting about 5k in equity per year. Beyond the fact that the value of the home went down and now we are underwater (yet don’t qualify for any govt assistance because we can still afford the mortgage – which I don’t disagree with), the whole thing was a mess. We couldn’t afford to buy, and we shouldn’t have bought. Just like now when we are emptying our life savings in order to sell the stupid place, we cannot afford to buy another home. So, I will suck it up and rent for five years or however long it takes to put 20% down. I just think it is unbelievable irresponsible for people to do this, and while I understand Lori’s perspective in terms of educating the public about their options, I also think there is somewhat of a moral obligation to point out how this can blow up in people’s faces. My agent (not Lori) made it seem like this was such a great idea and we were making the BEST decision ever… not so much. It’s so important to be realistic.

  48. patk14

    Sorry to hear your situation Bought. Sounds like you learned a valuable lesson from this experience. The key thing is that, if you knew nothing about real estate, why did you jump in with both feet at a time when there was already negative press on the industry? If the market had kept increasing 20%/year, would you have shared your gain with the govt? Of course not. But you want the taxpayers to share the pay for your poor decision?

    By the way, Freddie Mac needs another taxpayer injection of $10.6 billion after reporting a $6.7 billion loss for the 1st quarter.

  49. Tiger

    whynot — LMAO!! 😀 I just saw this! I did not say white shag, I said offwhite rug. Major difference :). Re: Lua, Lua’s food was good, but not great. I like nice places but there is a fine line between nice/classy and snoby.

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