Not HUD approved condo.

Asked by Swati, Mar Vista, Los Angeles, CA Wed Jan 27, 2010

What does it mean when a condo is not HUD approved. I was told that I need to have atleast 20% DP for a condo that is not HUD approved ( conventional loan ). Is that right? Also, what would it mean with respect to repairs and safety? Will there be issues with getting home insurance ?


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Edward Rohn, , Sherman Oaks, CA
Tue Feb 2, 2010
There is really only one way to find out if a condo is approved and eligible for FHA FINANCING!

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Dorene Slavi…, Agent, Torrance, CA
Fri Jan 29, 2010
Dear Swati,
It means that you will not be able to purchase that condo with HUD funds. You will have to get a different type of loan and pay a higher down payment. HUD has their own criteria for property they will issues loans on.
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Deborah Brem…, Agent, Los Angeles, CA
Wed Jan 27, 2010
HUD is an acronym standing for Housing and Urban Development, a cabinet of the United States, charged with ensuring smooth policy for housing and city development. Since the mid-1970s, its focus has shifted primarily to housing, leaving urban planning more in the hands of individual cities.
One of the main functions of HUD, and certainly that with which most people interact, is its role as a lending facilitator. HUD helps people of low- and mid-level incomes acquire loans to purchase housing. HUD itself is not a lending institution, but it approves lenders and supports them materially.
HUD is also loosely connected to the the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae), both of which deal with mortgages in the United States. The Federal Housing Administration (FHA) falls more closely under HUD, helping to guarantee mortgages to low-income homeowners.
There are many reasons why a condo may not be HUD approved, and therefore not eligible for an FHA- insured loan. (Read HUD's Valuation FAQ's here: ) The end result would be that if the condo cannot get approved, you would not be eligible to use the lower down payment, FHA loan, forcing you to get a conventional, conforming loan.
In the past, lenders could assist with "spot approvals" of individual purchases in buildings not previously on the FHA lender approved list. That option is now off the table, due to overall tightening of FHA underwriting gudelines. (Please see my post about new FHA guidelines here:… )
The tighter guidelines are ultimately designed to help buyers find and qualify for better units in better buildings, and truly afford what they qualify for.
In terms of repairs and safety, HUD guidelines are very consumer-centric, and focused on the homebuyer's protection. If you must buy without an FHA loan, you can accomplish the same thing for yourself, by diligently investigating the condo association, reading the ccr's, bylaws, and minutes; and with respect to the physical unit, hiring the best inspector you can get. INSIST that the property be in excellent condition, paying strict attention to the "health and safety" issues in the unit.
Best of luck,
rah Bremner
REALTOR, 00588885
Certified Short Sale Professional
Certified Home Retention Specialist
(D) 818.564.6591
Blogging at:
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Brad Gill, Agent, San Jose, CA
Wed Jan 27, 2010
Just to add a few additional important points to the posts below, conventional financing will work just fine on a non-HUD approved condo project. HUD approval is only necessary if you are choosing to move forward with FHA financing. And even if a condo project is not HUD approved, some lenders offering FHA financing will still allow what is called “spot approvals” to be completed on these projects, which is very similar to what your conventional lender will go through to determine the viability of the overall condo project.

Of course, just because you are putting down 20% or more and using conventional financing will not mean that your financing is guaranteed. You will be required to provide your proposed lender with a condominium project certification – which is a question and answer form for the Homeowner’s Association’s management company to complete, along with the Articles of Incorporation of the HOA, a few years worth of the annual budget, and the insurance coverage information for all common interest areas of the project.

All, lenders and mortgage sources (both government and conventional) are still tightening their lending guidelines on condominium loans because so many condo projects have been ravaged by the housing bust. But then again, this may prove to be useful for you since your lender will not be allowing you to finance a condo in a project on the verge of collapse.

Additional warning signs that will keep lenders from lending on a condo project:
• If the HOA is involved in any current litigation
• If more than 15% of the HOA dues are delinquent
• If there is a high percentage of non-owner occupied units
• If the management of the HOA has not been turned over to the homeowners
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Barbara Van…, , Folsom, CA
Wed Jan 27, 2010
FYI ... its getting very hard to get conventional financing for a condo these days. If more than 15 percent of the HOA dues are deliquent, lenders will not approve conventional financing for a new buyer.

When it comes to condo financing ... buyers and their agents need to due homework upfront to make sure their financing is OK before entering into a purchase contract and getting surprised later.

All the Best!
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Dan Chase, Home Buyer, Texas City, TX
Wed Jan 27, 2010
FHA has requirements for condo's to be approved. How many units are owned, how many are rented, is there a HOA, and more.

If the building has a low percentage of owned condos the building could go into foreclosure. The bank gets it, they could rent out the rest of the condos. Not exactly what the condo buyer wanted is it?

The condo owners will have to abide by the hoa rules, will the renters?

When the condo owner tries to sell and the condo is not fha approved that rules out most potential buyers. That will lead to a longer sales time frame and less paid for the condo.

It could mean no HOA exists. If repairs are needed it is more likely you will be facing a high cost assessment to cover the cost of repairs due to less owners to pay. It could happen in any condo.

Only buy a fha approved condo. It will save you a lot of trouble, and grief.
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Julie Rice T…, , San Mateo, CA
Wed Jan 27, 2010
Yes, that is correct. As Lori suggested, you could put less than 20% down and get mortgage insurance, but I believe 15% down is the minimum down payment for a conventional loan, with Mortgage Insurance, for a condo. 10% down is what is allowed for a single family homes with Mortgage Insurance.

As of February 1st, FHA will no longer allow "Spot Approvals" for condos that are in complexes that are not already FHA approved. So, after this weekend, you would no longer be able to get the condo approved while in escrow. The only options are to choose a condo project that is already HUD approved, or use conventional financing.

Here is the link for you to be able to look up HUD approved condo projects. The easiest way to search is by city. Just make sure to also put "city" in the "sort by" drop down box. And in the last box, status, choose "all".

TImes are getting really tough for condo buyers, but there are actually more HUD approved projects out there than you might think.

Good luck,
Julie Thall
FHA Specialist
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Lori Matson, Agent, LA, CA
Wed Jan 27, 2010
I think you are referring to FHA approved condos. In order to purchase a condo through FHA financing - with 3 1/2% down, the building has to be FHA approved. Sometimes a building can be FHA approved while you are in escrow if thye Homeowners' Association is amenable to doing that. Fixer properties generally do not qualify for FHA financing. FHA does require the seller to pay up to $3,000 of closing costs and sometimes certain repairs need to be done before the close of escrow. Depending on your income and credit report, if you are not able to get FHA financing, you can receive a conventional loan with 10% down. If the property is a fixer, you will most likely need to put 20% down. Homeowners insurance should not be a problem if you are able to get a loan.
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