I am a Mortgage Broker and have done FHA loans with spot approvals consistently since 1997.
I will address this from as many angles as I can:
1. The Lender or Broker did not do their job well. In order to get a spot approval, the Lender requests a Condo questionnaire from the Condo Management company. They look for certain things on there. The spot approval will usually be denied if:
a. There is a high percentage of rentals in the building.
b. The association is involved in a lawsuit
c. the association has "first right of refusal" if anyone wants to sell the unit
d. The association does not have the required amount of reserves, insurance or other requirements to fulfill the FHA guidelines
These are some of the major things they look at.
If the Processor on your loan had reviewed the condo questionnaire after gertting it back, it would have been discovered right away that you could not get a spot approval, and you would not have had to go through the emotional trauma of having your condo not be approved for an FHA loan.
As a matter of fact, the reason for the denial might be something reversible, but your Lender might just not want to have to deal with the hard of work getiting enough information to make that decision. Remember, a Company is only as good as it's employees.
Please look me up at http://www.marvelmortgage.com or call us at (773) 779-1190. and let us take a look at your situation. I would love to take this challenge on, and see how we can resolve it.
Nike Fasanya, CMC
Marvel Ventures Mortgage, Inc
Just wanted to add that since Feb. 1st Condo's and FHA have changed as people are starting to find out. More changes are happening for FHA with the costs for an FHA mortgage are going up after April 5th. I summarize all the condo changes at: http://www.mortgagejaw.com/fha-new-condo-approval-process/
The good things with this change are that once you gather up all the information like you would have had to for a "spot approval" in the past, submit the info through a Direct Endorsed Lender, then they can work on getting the condo approved. Once the condo is approved for that one buyer going into the project........THE WHOLE PROJECT IS APPROVED and everyone within the project should be thanking that one buyer and everyone involved who went through the process.
Couple of key things you need to watch out for that would be red flags up front:
1. 50% of the condo units need to be owner occupied.
2. Condo association must be maintaining 10% for reserves each year in their budget (this is a big deal killer) If not then need a reserve analysis showing why they are still ok below a 10% amount.
3. FHA financing concentration is not more then 30% (it is temporarily 50% because this is new)
4. No more then 10% of the units can not be owned one investor.
5. No litigation, if so need to know who, what, when, where, and why.
These are just some of the major items that commonly cause issues. Hope this helps and want to see the actual letter from FHA then head to my link I gave. http://www.mortgagejaw.com
If you are eligible for VA financing, then the condo you are purchasing must be VA approved. To see if a condo complex is VA approved, see http://condopudbuilder.vba.va.gov/2.2/frames.html.
If you are applying for a conventional / conforming mortgage, it must be Fannie Mae approved. To see if a condo complex is Fannie Mae approved, see https://www.efanniemae.com/sf/refmaterials/approvedprojects.
If the property is eligible for USDA financing and if you meet the income limitations, USDA will accept condos that are FHA approved, VA approved, or Fannie Mae.
If the condo complex does not meet any of the above, then you may wish to try a local bank or credit union. If you are not able to obtain financing for the condo you want to purchase, you will need to find another condo that meets the requirements.
Important items to look at:
1. Max of 33% FHA financing allowed in the condo project. (1-4 unit condos, only 1 can have FHA financing)
2. "Right of first refusal" gone. Yes! but wait......
3. No more "Spot approvals" so condo project must be approved the old fashion way or through a Direct Endorsed lender...as we are. :)
There are a few more changes within the mortgagee letter and at the website directly from HUD. Hope this helps :)
I can be reached at email@example.com or by phone at (847)293-2962 if you have any questions.
Stenger Consulting Services
Thanks to everyone else whom answered as well. I got my answers and will not be pursuing conventional financing for this deal.
FYI for anyone interested- starting in October 2009- FHA is changing the way they handle right of refusal
they will allow spot checks to pass long as there is no discriminatory language.
Thank you so much for choosing my initial as your best response.
I believe your biggest problem is the "first right of refusal" that the condo association has. This is actually not good for you either, because it makes this condo association very powerful when it comes to making decisions about unit owners in delinquency, No mortgage company is going to let anyone have decision making powers before them on any property on which they have a lien.
The first step would definitely be for your attorney to try and work with the condo association, to see if they will waive their ROFR concerning this specific unit. (Yes, I've seen it done). If they will not, this property is automatically not insurable by anyone, not HUD, not FNMA and not Freddie Mac.
Regarding the lack of reserves and delinquent units, an updated budget and other docs plus a strong letter of explanation would take care of that, since the picture has changed since their first budget and they can now show reserves etc.
I would still be concerned however, about the power level of this association. Buying is only one part of the marriage. You would have to live with these people and obey their rules until you sell, so please read those condo association rules thoroughly before you sign any contract, and make sure your attorney explains them to you so you are clear on your limitations.
All this difficulty might actually be a sign...
It seems that you have a question no one is answering. No one is addressing if you have other options. Truly they can not without knowing more about your financial profile and the condo itself. How much are you putting down and how is your credit are important questions to answer. Another thought is that if there are budget issues in a condo are you getting into something that can come back and bite you. Will there be financial issues for the condo association that you are inheriting.
I would look closely at the problems of the condo and consider whether I want to take on their issues.
Personally if FHA is not an option and that is the best financing answer for me I would look for another place, there seems to be some red flags here.
Not sure when this will get better
I am curious as to why the complex did not pass spot approval? In my experience, lenders interpret the fha guidelines in different ways. I have had one lender say a complex is not on the fha list and another provide fha financing. You may want to get a second opinion from another lender but be prepared to either come up with a higher down payment for conventional financing or find another complex.
Best of luck!