Why is approval important and valuable?
The Federal Housing Authority, commonly known as the FHA, does not issue mortgages, contrary to popular opinion. They do provide mortgage insurance to lenders on behalf of qualified applicants and as such, are important players when it comes to the availability of mortgages. It is estimated that approx. 60 percent of all home buyers may choose an FHA backed loan.
About a third of all mortgages are FHA insured.
There are several reasons these FHA backed loans are preferred. Because these loans are insured, the purchaser/borrower can put down a smaller down payment, between 3.5 and 10 percent depending on credit score and other factors. Some FHA loans are also assumable by subsequent buyers, not true of conventional, uninsured loan products.
In order for such a loan to be available, the condominium property must be approved by the FHA, and not all condos meet the strict requirements set by HUD. Some of these include that the condo be at least 51 percent owner occupied, be financially stable, have a suitable reserve fund, and certain specifications regarding leasing of units. The FHA approval has an expiration date, and condos must reapply every two years to maintain certification.
As an aside, the Veterans Administration (VA), which also insures loans on behalf of veterans and active duty military personnel, also has a set of approval guidelines which are not identical to FHA guidelines. The VA approval of a condo does not expire so condos can make a one-time application for certification.
Condominium owners wishing to apply for certification may have applications prepared and submitted by experts in this field, who customarily charge about $850-$1,200 for this service. Completed applications are reviewed in 30 to 60 days.
Customarily, the cost is undertaken by the Condominium Association, but it is also possible for a homeowner, lender or other interested party to pay for the approval.
Condominium Boards are not legally bound to apply for FHA and VA certifications, but a failure to do so can be construed as a failure of the Board’s fiduciary duty to its members, who can institute suits against the Board if they are so harmed. It is certainly in the Board’s interest to make its units available to as many potential buyers as possible. Fulfillment of the requirements benefits all.
