Why you should make sure your condo is on the FHA approved list

Editors Update: Loan limts are different than what's refected below from when this article was orignally written.  Check with your local FHA approved Mortgage Originator to see what your loan limts are (or click on the link in the second paragraph).

If your condominium is in a price range that would support FHA financing, you should contact your Home Owners Association to verify that your condominium is indeed on the FHA approved list.  Even if you're not planning on selling or refinancing anytime soon, if your condo is not on FHA's list, it can impact the value of your condo. 

As of today, the FHA loan limit for the tri-county (King, Pierce and Snohomish) areas for a single unit dwelling is $362,790.    If your condo is valued at approximately $380,000 or less, it may be attractive to home buyers are utilizing FHA financing.  With fewer programs for first time home buyers, FHA insured mortgages are a popular selection.   If your condo is not approved for FHA financing, you may be limiting qualified buyers.   Fewer home buyers means that the condo that's for sale in your complex, may not sale for as much as it could have.  This may translate to lower values for all in your condo complex.

Another reason why you should make sure your condo is on the FHA approved list is because you or one of your neighbors may need to use FHA financing to refinance.  As a result of our current mortgage landscape, fewer mortgage programs are available for people who may not have the highest credit scores or who need a mortgage with a higher loan amount.   FHA insured mortgages are not credit score sensitive and will allow up to 95% loan-to-value for a cash-out refinance at a competitive interest rate.  Not having FHA insured mortgages as an option to you and your neighbors who need to refinance may have damaging long term results such as a short sale or foreclosure if they are heading for financial troubles.  Foreclosed properties also bring down the values of neighboring homes.

Ask your Home Owners Association if your condo is FHA approved.   If your condo has phases; each specific phase is considered and may or may not be approved.   You can also check HUD's site and contact your local Mortgage Professional to verify whether or not your condo is on the FHA approved list (FHA's approved condo site can be confusing and easy to assume your condo is approved).

Here are a some of the requirements for condominiums to meet FHA's guidelines:

• At least 51% of the total units in the project must be owner occupied.
• At least 90% of the total units in the project have been sold.
• No single entity owns more than 10% of the total units in the project.
• The project, including common areas, is complete with no special assessments and no legal actions pending.
• The owners association has a reserve plan and a reserve fund , separate from the operating account that is adequate to prevent deferred maintenance.

I recently had a hard working single mom contact me who needed to restructure her debts and wanted to use her mortgage to do so.   Her credit scores were average and a few months ago, I would have been able to provide her several mortgage options.   In today's market, the only mortgage available for her (excluding hard money) was FHA.   

Unfortunately, her condo phase was removed from the approved list due to the reserve account dipping below the amount that was considered "adequate".  We discovered at the time of the refinance, the reserve account were back to an acceptable amount.   The HOA just needed to have an audit completed in order to be considered back into FHA's good graces.   FHA does allow "spot" approvals, however, if your condo has been removed from the list, a spot approval is not an option.  Apparently the cost of the audit was approximately $2,000 and the manager of the HOA was in no hurry to accommodate my client or us.

Since the Phase her condo is located is not FHA approved, she cannot proceed with FHA financing which would have saved her $450 per month and would have switched her from an adjustable rate mortgage to a 30 year fixed FHA insured mortgage.

It truly is in your best interest and your neighbors, if your condo is near the FHA loan limits, to make sure your condo phase is on the FHA approved list.   As the process may take weeks to complete, I strongly encourage you to take action now.   Don't let your HOA be lazy...you may need to rally the support of your neighbors of your condo phase.  It's well worth it to protect the value of one of your largest investments.