The Malibu Real Estate Resource Guide
Malibu California Real Estate ×€ Malibu Homes for Sale & Lease ×€ Malibu Land
Sellers should ensure that condo projects are on approved list for FHA mortgages
Condominium owners who are trying to sell in today's agonizingly slow housing market should make sure that their community is on the Federal Housing Administration's approved list. Ditto for someone who is thinking about refinancing a condo.
Under a little-noticed edict put in place in December, the FHA is no longer approving mortgages on condominium units on a spot, loan-by-loan basis. Now the entire project must be cleared by the agency before a buyer can purchase a unit in the community with a government-insured mortgage or an owner can trade in his loan for a less expensive one backed by the FHA.
The FHA doesn't make mortgages - at least not directly. Rather, it insures lenders against the possibility that a borrower may not make his payments as promised. Consequently, lenders love the loans because the government, not the lender, is on the hook should someone default.
With their low down-payment requirements and liberal underwriting rules, FHA loans are highly coveted by borrowers too. That doesn't mean they're only for low-income borrowers. On the contrary, they're open to anyone regardless of what they earn. And would-be borrowers are properly vetted just like those who are seeking conventional financing.
Late last year, though, the government said entire condo projects must meet certain standards before the FHA will back even a single loan in any particular property.Â The CheckFHA report also notes whether the property is involved in litigation, the percentage of units financed by the FHA, the percentage occupied by owners and the percentage of investor owners. Because of the FHA's strict condo rules, each bit of this kind of information is important.
There are several ways to go about getting a project approved. Lenders who have delegated underwriting capabilities can clear a property, but it's doubtful lenders will do that on their own unless someone already has applied for financing - and buyers rarely line up their loans before they go shopping.
A condo association also can initiate the process, as can a property-management company, if there is one. So can a lawyer, but only one who is well versed in condo law. The builder can start the ball rolling too, if it's a new project.
According to the government, the "vast majority" of requests for FHA approval go through smoothly. But there are numerous requirements, such as no more than half the units in the property can be financed with an FHA loan and owners must occupy at least half the units. A problem with any one of the rules can set the approval process back by weeks.
One of the more frequent issues that can delay the process or stop it is litigation. Â For example, the property cannot be involved in a defect suit against the developer. Other major issues are association dues and budgets. No more than 15% of the total units can be in arrears, and budgets must contain a provision for reserve funds to address future repairs.
Bobby Lehmkuhl ×€ Bobby@4Malibu.com ×€ 310.365.7696 ×€ Broker Lic. #01457517
Danielle Dutcher ×€ Danielle@4Malibu.com ×€ 310.773.7556 ×€ Broker Lic. #01463653
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although information has been gathered from sources believed to be reliable, please note that individual situations can vary, therefore, please consult a professional for specific advice.