Condo not approved for FHA- are there other options for financing?

Asked by Tasha Stewart, 60653 Tue Jun 23, 2009

Property is not on the FHA approval list nor did it past spot check approval. any options that may help when FHA is not approved?

Help the community by answering this question:

+ web reference
Web reference:

Answers

19
Nike (Nikki)…, , Beverly, Chicago, IL
Thu Jun 25, 2009
BEST ANSWER
Hi Tasha,

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.

Sincerely,

Nike Fasanya, CMC
President
Marvel Ventures Mortgage, Inc
0 votes
Jason Wroble, , Chicago, IL
Wed Mar 31, 2010
Wow, great job Lew!

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
1 vote
Lew Corcoran, Agent, Easton, MA
Tue Mar 30, 2010
There's no such as a "spot approval" anymore. Either the condo complex is approved by HUD through the HRAP (HUD Review and Approval Process), or the lender has to approve it through DELRAP (the Direct Endorsement Lender Review and Approval Process). If a condo complex is not approved through either of these two methods, then the condo, then it is not eligible for FHA financing. To see if a condo complex is HRAP or DELRAP approved, see https://entp.hud.gov/idapp/html/condlook.cfm.

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.
1 vote
Lisc714, Home Buyer, Chicago, IL
Mon Apr 11, 2016
Is this NJ condo fanny may approved The Clusters at Washington
0 votes
Is this condo fanny may approve
Flag Mon Apr 11, 2016
Lisc714, Home Buyer, Chicago, IL
Mon Apr 11, 2016
Is the condo "The Clusters at Washinton" fanny may approved
0 votes
Jason, , San Diego, CA
Fri Apr 9, 2010
Call 888-531-1119 they seem to be the best source to answer FHA approval questions, I believe they are located in CA. So keep that in mind when calling. I find it wierd that you where told that you cannot get approval...I have a 2 unit condo and we just did...the company whose number I am giving you does approvals nationwide so if anybody is going to know I would think it would be them.
0 votes
I spoke with Yaniv Cohen with FHA Pros at the above number. Very helpful!
Flag Tue Dec 8, 2015
Pebbles, Home Seller, New Jersey
Fri Apr 9, 2010
we own 1 unit of a 2 unit condo in our small town. this entire section of the town is set up as 2 unit condos. we've been trying to sell our unit for months and have been in a couple of contracts, only to find they are not FHA approved and will not accept us. The price is VERY low and everyone in this price range seem to be using FHA now. What rights do we have as homeowners? We can't sell our property because of these new laws, what should we do?
0 votes
Dp2, , Virginia
Wed Mar 31, 2010
Jason thanks for the update; I'll keep that in mind.
0 votes
Jason, , San Diego, CA
Tue Mar 30, 2010
Jason,

you where right on every fact except that 50% of an association can have FHA backed loans
0 votes
Jason Wroble, , Chicago, IL
Wed Nov 25, 2009
Don't forget about December 7th, the FHA condo process is changing!!!
http://www.mortgagejaw.com/fha-new-condo-approval-process/

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 :)
0 votes
Steve, , Chicago, IL
Mon Sep 14, 2009
My consulting company can help your condo association get your project approved for FHA financing. With an FHA approval you can also use that FHA approval for Conventional financing( Fannie Mae and Freddie Mac). Both Fannie and Freddie accept the FHA approval on condos.
I can be reached at sstenger@foxvalley.net or by phone at (847)293-2962 if you have any questions.

Steve Stenger
President
Stenger Consulting Services
0 votes
Tasha Stewart, Home Buyer, 60653
Tue Jun 30, 2009
Nike thanks for taking the time to personally look at my situation and your input.
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
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/fi…
they will allow spot checks to pass long as there is no discriminatory language.
0 votes
Nike (Nikki)…, , Beverly, Chicago, IL
Tue Jun 30, 2009
Hi Tahsha,
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...

Sincerely,

Nike Fasanya,CMC
President
0 votes
Louis Jeffri…, , Matteson, IL
Fri Jun 26, 2009
Tasha,
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.
0 votes
Jeffrey Kropp, Agent, Chicago, IL
Wed Jun 24, 2009
So I am guessing lack of reserves? The seller should know tell his fellow units owners and Board members that his unit is not marketable. Then they have an obligation to fix the issue and as a practical matter it hurts all their home values also. So you may need time, but its possible the seller and the association can fix the issue, by raising a special assessment or something. I am suggesting this because other buyers of mine have had the same issue.

Good luck!
Web Reference:  http://www.1sthomegroup.com
0 votes
Tasha Stewart, Home Buyer, 60653
Wed Jun 24, 2009
Jeff- it didnt pass due to HOA budget issues.
0 votes
Jeffrey Kropp, Agent, Chicago, IL
Wed Jun 24, 2009
Do you know why it did not pass a spot check?
Web Reference:  http://www.1sthomegroup.com
0 votes
Lori Lewis, Mortgage Broker Or Lender, Bethlehem, PA
Wed Jun 24, 2009
These spot approvals are kind of on the back burner per HUD. Without putting it in writing, they tell us they suffered a tremendous loss with condos last year and they really don’t want to finance them at this time. We are having a very hard time getting new complexes approved even going to long way.

Not sure when this will get better
0 votes
Shannon Swee…, Agent, Fenton, MO
Tue Jun 23, 2009
Tasha,
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!
0 votes
Search Advice
Search
Ask our community a question

Email me when…

Learn more