How does a town home association become an FHA approved association?

Asked by Jeff, Minnesota Wed Jul 23, 2008

I live in a town home association that is not a FHA approved association. I am currently trying to sell my home but the buyer is having difficulty because FHA say's that we are not an approved association. My understanding is that 18% of the loans in my community are FHA loans and the rest are conventional loans. FHA is being a sticker saying that they will only allow 20% of the loans in the association be FHA. My buyers loan would put us at 22%. I am stuck. I'm trying to get out of here but there doesn't seem to be anyway I possibly can. Does anyone have any suggestions?

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Don Edam, Agent, Edina, MN
Thu Jul 24, 2008
Hi Jeff,

Townhomes and Single Family Homes do not need to be on an FHA Approved List to qualify for FHA funding. A condo association (which many "townhomes" actually are) does need to meet certain guidelines. A list of already approved condo associations is here:

If your condo association is not listed on the Approved List, you can attempt to gain "spot approval" (we just got this done on a condo we had listed). The following needs to be true to gain spot approval:

• The condominium project must be complete. There should be no ongoing or anticipated addition of any units, common elements, and/or facilities.

• Control of the common areas of the project must have been turned over to the unit owners association for at least one year.

• The owners association must provide evidence that the project has the appropriate hazard, liability and flood insurance.

• Individual units in the project must be owned in fee simple or be an eligible leasehold interest. The project's legal documents must provide for undivided ownership of common areas by unit owners. By virtue of this ownership, unit owners must have the right to use all facilities and unrestricted common elements.

• The project's documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is generally unacceptable. Such restrictions include rights of first refusal and restrictive covenants. Certain governmental or nonprofit programs designed to assist in the purchase or rental of low- or moderate-income housing are exempted from the restrictions on conveyance provisions.

• At least 90% of the units in the project must have been sold.

• At least 51% of the units in the project must be owner-occupied.

• No single entity may own more than 10% of the units in a project. "Entity" includes an individual partnership, corporation, limited liability company, limited liability partnership, joint venture, investor group or other natural or legal person qualified to hold an interest in real property. The 10% restriction does not apply when the ownership of less than three units would disqualify an otherwise eligible project.

• HUD recognized that the 10% cap on the number of units that may secure FHA insured mortgages in a given project can place a small regime at a disadvantage, since only a few units will invoke the limit. Accordingly, a two-tiered system was established. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time. Condominium projects consisting of 30 units or less, can have up to 20% of the units encumbered by FHA insured mortgages under the spot loan rule.

It can get a little confusing :) Let me know if you have any further questions at all and I'd be happy to help!
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0 votes
Fri Feb 13, 2015
For an updated list of FHA approved condos in Minneapolis checkout… for 24/7 access. Unfortunately the HUD site is down in evenings and on weekends when people need it most. Most other sites have data that is out of date.
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Eric Boucher, , Manchester, CT
Wed Mar 21, 2012
HUD's guidelines is that up to 50% of the units can have FHA-insured loans and, in certain cases, up to 100% of the units in the project can be encumbered with FHA loans.

The approval process is a matter of submitting the required documents to HUD to get approved, if the project is approvable. Refer to the link below for a list of basic criteria for approval with HUD.
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Josie Morris…, Agent, Lisle, IL
Mon Mar 19, 2012
I would ask your Realtor for help & see if they have any lenders that will assist as well. Some lenders are willing to do the paperwork & help assocations get approvals. However, if the % exceeds at the time when you need to sell you may just have to wait unitl the % goes down. It will not last forever. The market is improving.
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Bob, , Maryland
Thu May 20, 2010
If your association is a condominium association as opposed to a PUD it must be approved by FHA to allow FHA loans. If it is a PUD no FHA approval is needed. Condo approval can be done by a FHA lender which is an unrestricted direct endorsement underwriter under what is called the DELRAP process provided the lender has demon for approval under the HRAP process. . The larger direct endorsement lenders are more likely to have the required expertise. Try Wells Fargo, B of A, Chase, etc. Go to their retail loan officers rathe50%. This answer is accurate as of 5/20/10. You can view the FHA mortgagee letter on line describing the process. Google "FHA mortgagee letter ML 2009-46"
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Steve, , Chicago, IL
Tue Sep 15, 2009
If your townhome is actually condominium ownership then it might make sense to get FHA approval. The project doesn't have to be turned over for 1 year to obtain FHA approval. Only for "spot" approvals is that accurate. However, FHA is doing away with the "spot" process unless you close on that loan by the end of October. FHA approval is also accepted by Fannie Mae, Freddie Mac, VA, as well as MI companies. FHA is also supposed to be increasing their project concentration limits in the near future. My company can assist you in the process of getting your condo approved through any of the agencies.

Steve Stenger
Condo Approval Professionals LLC
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Ben Goheen, Agent, Saint Paul, MN
Wed Jul 23, 2008
Hi Jeff,
Since I don't know about your specific development, I can only speak to what I've seen as an appraiser and Realtor. Townhomes do not need to be on the approved list by FHA - condos do. So while your townhome may look like a townhome, it's probably actually a condo.

You can check to see if you association is listed as 'approved' on HUD's list of condos:

It may have been at one point and that's why some people have FHA loans, but then rejected by FHA for some reason now and thus the reason why you can't get an FHA loan on your place. Hope this helps!
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