There is no escaping the simple fact that the burst of the housing market bubble has led to a near total collapse of our economy. While there are some positive signs that a recovery is taking hold, this crisis has motivated a top to bottom review of the mortgage loan industry. Congress is currently wrestling with regulations to impose on the private lending industry. As that struggle goes on, government-backed agencies are making changes that are having an impact on buyers and sellers alike.
This is especially true in the condominium market with regard to federal housing authority or FHA . Because of new restrictions, many buildings have lost their FHA certification, making it harder to not only sell condos from within but also buy them.
The Good and Bad Of FHA Certification for HOAs
An FHA loan is a loan that is backed by a government to guarantee. In simple terms, this means that if the loan cannot be repaid by the borrower the government will step in and remedy the situation.
There is good news and bad news with regard to an FHA loan. The good news is mostly for prospective buyers who qualify for a 3.5% minimum down payment on a property. When you consider that a conventional bank would require up to 20% of the down payment it’s clear why the FHA loan affords more opportunities for ownership. The bad news is that not only will the buyer have to be qualified but the condominium unit itself also needs to be certified as FHA compliant.
Within the past year the number of approved FHA condo loans has dropped by 41%. That is due in no small amount the new certification requirements. An FHA certification last for two years. The renewal process involves a lot of paperwork that has to be properly generated by the building’s Homeowners Association.
A lot of HOAs are reporting that their recertification has been rejected because of clerical errors like missing words. However, it’s those new restrictions that are causing major headaches for HOAs.
Among the new requirements for FHA certification are:
- A building needs to be 50% owner occupied.
- No more than 10% of the units can be owned by a single investor.
- No more than 15% of the units can be 30 days past due for monthly assessments.
- 10% of the HOA budget needs to be set aside for capital expenditures and deferred maintenance costs.
- Board members must sign a document certification and face severe financial penalties if those documents are not true.
As a board member or unit owner of a condominium complex you are well within your rights to inquire about the status of your building’s FHA certification. If the building is up for renewal then you can become part of a steering committee that will help guide the certification process.
This article is provided by The Management Trust.