i'm looking at purchaseing a condominium that is not FHA approved, is this a good investment

Asked by Reggie, Minneapolis, MN Wed Oct 28, 2009

Would it be harder to resell down the road

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CCC, Home Owner, San Diego, CA
Wed Oct 28, 2009
Hi, it depends, what is the reason currently is not FHA approved? I live in a Condo in DT Minneapolis and the building was not FHA approved and not it is. There are somehtings that need to be done by management to be approved.
Had your Realtor mention why is not FHA approved?

Thank you.

Benito.
1 vote
Mnboy, , Minneapolis, MN
Mon Nov 2, 2009
Reggie,
Cameron is right with the "make your money on the buy side". I have said this before, Condos and Town Homes will always be overbuilt because the builders make more gross profit per acre of land. Because of this, it is a longer term play for appreciation. Not everyone looks at a property as an investment, many need and want a place to live. The FHA and lenders have been creamed in certain parts of the country on condos.
The worst here in the TC is the one in Minnetonka(name withheld to keep me out of trouble). There is a reason why it is not approved, there is a complex in SLP rumored to face a 400,000 renovation. It could be a simple reason or not. If the most liberal of lenders is opting out, you might get a little(lot worried). Do a search(Google) for FHA condos not approved, I did and came up with whole lot of reasons not to buy it.
No one should buy with out a 18 months history check. 90% chance the negatives will come out. One more thing you will most likely need at least 20% down.
Web Reference:  http://www.hansen2hansen.com
0 votes
Cameron Piper, Agent, Forest Lake, MN
Wed Oct 28, 2009
Reggie,

Based on the information you have given us, no real estate agent will be able to tell you whether or not the condo you are considering is a good investment. Rather than focusing on the future salability of the property I would spend a long time considering the current market and how it relates to the property in question.

A very wise real estate mentor of mine once told me that "you don't make money when you sell a house, you make money when you buy a house." In other words, look for houses that already have an equity position built into them now, because when you sell you have little control over what a buyer will ultimately be willing to pay you for the house.

In any market economy limiting potential buyers will have a negative impact on pricing. To that end, I would say that a non FHA approved building would be a negative, but it wouldn't scare me away at face value. First, you can always work to get the condo approved by the FHA (somewhere in that dusty brain of mine I remember something about FHA doing away with the approved list, and working all approvals as spot approvals, but alas I can't remember exactly).

Second, it is possible that the negativity that the non FHA approval could have on the property may already be accounted for in the price. To figure this out, have your agent run some comps on similar active (yes active) condos that are FHA approved and see if there is a price disparity. They will complain that this will take a lot of work, but if they give you any lip, fire them and find someone who wants to work hard to find you the best deal possible. Remember that you are the customer and you deserve that.

Good luck in your search.

Cameron Piper
#1 Trulia Agent in MN
Web Reference:  http://www.campiper.com
0 votes
Patrick Howa…, Agent, Edina, MN
Wed Oct 28, 2009
Hi Reggie,

That's a great question! It depends on if you plan on selling the condo any time in the future. If you're going to buy it and don't plan on selling, then you may be ok. If you're likely to sell it in the future, I would at least ask the Home Owner's Association why it's not approved for FHA. I've run into this before where the complex wasn't approved for FHA and when I asked the association about it, they didn't know it wasn't approved so they started the approval process right away. There is the possiblity a future buyer could get "spot approval" for FHA but that is a more involved process than if the complex is already approved. Not having FHA as a financing option would limit the ways a buyer can get a loan for the condo and could potentially make it harder for you to sell it.

Good Luck!
0 votes
Lenny Frolov, Agent, Brooklyn Park, MN
Wed Oct 28, 2009
Having an FHA approved condo is going to be a defenite plus but that is not the only thing that should determine if its a unit you should purchase or not. If you like the unit and are getting a good deal on it I would say go ahead with the puchase. Not every buyer is FHA.
Web Reference:  http://www.lennyfrolov.com
0 votes
Aaron Dickin…, Agent, Champlin, MN
Wed Oct 28, 2009
It all depends on what it is and what price it is and how long you want to stay. If it is a short-term issue (development had many units go back to bank, for example) then as long as you are going to be there for the next 4+ years then you're probably fine. If it is an older development without much hope for improvement in the future, then it is not a good idea.

The other thing that matters is price point. Under $250k is much more sensitive to FHA than over that.... the type of buyer changes.
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