For the past several years it has been nearly impossible to get FHA financing on a condo. FHA announced this week changes that will dramatically change things.
FHA financing allows for those with little money for a down payment, challenged credit, limited credit, or lower income – one or all of these could be your situation.
The problem we in lending faced when trying to utilize FHA for a condo, is that FHA has its own list of approved condos. In order to get FHA to approve a condo, it takes loads of paperwork, and weeks for HUD to review and approve the project. Even when the project is approved, those approvals were only good for 2 years. As you might have guessed, there are very few actively approved condo projects. In fact, as of today, there’s only 77 approved condo projects in the entire state!
Prior to the financial crisis in 2008, lenders were delegated the authority to review condo project documents and “spot” approve those projects on a loan-by-loan basis. When that delegation was taken away, it removed all of the timeliness and efficiency needed. After all, if you were selling your condo, and the buyer wanted to use an FHA loan, I don’t think you would be willing to wait 6 weeks or more to have your project get approved, would you?
The announcement from FHA this week is that they will once again allow lenders to “spot” approve condo projects on a loan-by-loan basis. Ironically, this is no different than what lenders do right now with loans targeted to Fannie Mae and Freddie Mac.
From the perspective of your humble Mortgage Broker, this is huge news! This change will open up an entire category of homes predominantly in the price range of where most FHA borrowers can afford. Those with limited down payments or challenged credit are not the ones able to afford a single family home in Hawaii. They are the condo market. Yet, for almost 11 years, they have not been able to get the financing they qualify for because almost every condo project in the state had their FHA approval expire or the project was never reviewed.
While the new rules don’t take effect until October, if you are a candidate for FHA financing, but were sitting on the sidelines knowing you couldn’t afford a house, your opportunity to buy a condo is now. It is important to note that not all condo projects will get approved. It is a good idea to start looking now, so you can find the project at the right price range, and will pass a “spot” approval.