FHA Condominium Project Approval for Condominiums:
What is It, Why do We Want It, and How do We Get It?
Fair Housing Administration (FHA) condominium project approval is, in simplest terms, a process of review and confirmation that a condominium meets guidelines established by the US Department of Housing and Urban Development (HUD). For those of you that are one sentence in and already confused, FHA is part of HUD. For our purposes, the difference between the two doesn’t really matter when we’re talking about guidelines and approval.
Where a project meets these guidelines and is approved by the FHA, purchasers may be able to obtain loans that are insured by the FHA, which is the largest insurer of mortgages in the world. Because lenders have less at risk in FHA-backed loans, they can offer more attractive terms and loan to a broader base of borrowers. This increases the pool of potential purchasers for a property and helps keep market value high. The FHA does have loan limits, so for very high-end luxury condominiums, FHA approval may not be a practical concern; for most condominiums, however, FHA approval can be very important to sellers and purchasers alike.
In recent years there have been numerous changes in FHA requirements that may affect your association’s ability to obtain approval. Many of these changes were driven by market conditions, and it is a certainty that the requirements will continue to evolve in response to changes in the market. Unfortunately, this means that some things that were previously acceptable–or even recommended–will now cause an association to be rejected for approval by the FHA.
Beginning in June 2009, FHA approval changed drastically, with more major changes in June 2011 and September 2012. Significantly, since 2009 condominium project approval expires every two years, so if your association did not reapply for approval since these changes went into place, approval prior to that point has since expired. You can check your condominium’s current status and expiration date on HUD’s website here: https://entp.hud.gov/idapp/html/condlook.cfm.
Some of the primary considerations for FHA project approval are:
- Restrictions on a unit owner’s ability to sell or lease his or her home
- Pending litigation
- Pending special assessments
- Budget and reserve funding
- Owner occupancy ratios
For a more complete list of factors, we look to HUD’s 2011 Condominium Project Approval Guidelines, as well as their September 2012 clarifications and modifications. More are sure to follow.
Associations can be approved by the FHA in two ways. The first is through a lender. Sometimes, this may be triggered by a particular transaction. Some lenders can certify condominiums under a specific FHA process where the association provides the necessary information to the lender, who then processes the application itself. This is fairly uncommon, and carries with it time pressures as it is typically the result of a pending transaction.
The more typical route to approval is applying through the HUD Review and Approval Process. HUD has a lengthy checklist of required materials to be submitted with the application. Usually an association will have its management company or an attorney submit the application, since it is a complicated and confusing process. An experienced attorney may also be able to spot and cure issues that would prevent approval, which can prevent the added time and expense of reapplying.
Although it can seem like an overly-complicated, mysterious process, FHA condominium project approval is something that most condominiums should obtain and keep current.