FHA Buyers Blocked From Many Condos – Bad for Sellers, Bad for Buyers
Many condo communities have lost their FHA certification, something buyers and sellers don’t realize until a contract is blocked. If you know anyone who is in any way connected with condo or townhouse communities (owners, managers, potential buyers) they need to be aware of this: FHA revoked its certification of every condo earlier this year. If the management hasn’t reapplied, units can’t be purchased with an FHA loan.
It used to be relatively easy for a condo complex (or “project” in FHA parlance) to get certified by the FHA, meaning the agency would loan money to qualified buyers of units there. But with the burst of the housing bubble, FHA realized that a lot of delinquent and foreclosed properties were condos. So it tightened its rules.
Essentially, it ‘de-certified’ every condo and townhome and required each one to re-apply for certification, giving plenty of notice about what was going to happen. And in May it did just that.
Some condo associations and management were on the ball and immediately applied for recertification. But many, for whatever reason, did not. Some may have not realized they had to get recertified. Others may have had officers concerned about liability issues if they signed certification documents. And of course some condos simply don’t meet the FHA’s requirements.
Whatever the reason, the end result is that buyers are ineligible for FHA financing to buy a unit there; something many sellers don’t discover until late in the process when they learn that their pool of prospective buyers has shrunk considerably.
And because the certification process can take months, deals fall through or never get off the ground in the first place. Fewer buyers means prices will have to go down.
Bottom line: We need to get the word out to condo owners, condo associations, property managers, and anyone who is involved in buying or selling a condo or townhome: Find out whether your condo community is FHA certified.
Get in touch with the condo board or association. There’s a good chance they’re not even aware of the issue.
Requirements for FHA certification
• For a condo complex (or “project”) to have its units qualify for FHA loans, it must meet the following requirements:
• Insurance Coverage: Projects must be covered by hazard and liability insurance and, when applicable, flood and fidelity insurance.
• Commercial Space: No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes.
• Investor Ownership: No more than 10 percent of the units may be owned by one investor. This limitation also applies to developers/builders that subsequently rent vacant and unsold units.
• Delinquent Home Owners Association (HOA) Dues: No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payments.
• Pre-sales: At least 50 percent of the total units must be sold prior to endorsement of a mortgage on any unit.
• Owner-occupancy Ratios: At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units.
• FHA Concentration: No more than 30 percent of the total units can be encumbered with FHA insurance.
• Budget Review: The homeowners association budget must include sufficient funds to “maintain and preserve all amenities and features unique to the condominium project” as well as insurance coverage.
For the details, click here to a one-page HUD PDF.
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Should You Rent Or Buy?
I read yet another article today that stated “Well, if you ask a Realtor, then it’s always a good time to buy.”
Not so with us. It’s not always a good time to buy, and buying isn’t for everyone. We’ll tell you that.
There are many things to consider before buying a home, rather than just “the home will appreciate” vs “why pay for someone else’s property.”
There are a number of good rent vs buy calculators (just Google it) on the internet that consider some (but not all) of the dizzying number of things to consider:
—What is the average appreciation of a home in your target market?
—What kind of down payment to do you have?
—What is your credit score? (just a small glitch in your credit can cause a drop in your score and cost you thousands more over the life of a loan if you are unable to someday refinance). You don’t want to end up with a predatory lender. Work on repairing that credit score before applying for a loan.
—Will the mortgage interest and taxes allow you now itemize on your tax return? If so, perhaps there are other items you’ll be able to now itemize, whereas previously you had to just take the standard deduction.
—What is the local rental market like? It’s likely that over time, your rent will increase, while with a fixed-rate mortgage, your mortgage payments will stay the same – though your property taxes, insurance and maintenance costs could very likely increase.
—Are you “handy” or willing to learn how to be “handy?” If you cannot perform minor (or major) repairs yourself, you will have to pay someone to do these things for you.
—How secure is your job? Are you likely to be fired or laid off? If it happens, how likely is it that you can find another job at comparable pay? Is it likely you might have to relocate within the next 3-5 years? If so, selling costs, could more than eat up any gains you may have made.
—Just because a lender gives you an amount that you can “afford” or qualify for, you need to decide for certain whether you really can or not. Be sure to consider maintenance, property taxes, homeowners insurance and any homeowners insurance fees in your monthly budget vs. gains you will have in potential appreciation, tax deductions, etc. Don’t forget to include more longer-term items and make sure you’re able to start setting aside money in a fund for those things so they don’t cripple you when they occur: some day your home will need a roof, or a paint job, or a water heater, or a furnace, or an air conditioner.
—After your acquisition costs (downpayment, loan and document fees, etc.), do you still have a rainy day fund?
—Do you generally manage your money well?
In some markets currently (and possibly for the forseeable future), it would make much better sense to rent than to buy. For example:
In Austin, Texas, a $230,000 single-family house would rent for approximately $1,250 per month; in Irvine, California, a $587,000 single-family home would rent for $2,832, on average, per month. On those numbers, renting in Austin saves $94,800 over buying that same house over a 10-year period.
The present value of the benefits of owning that house in Austin is approximately $47,000 using these calculations. In Irvine, the renter saves a whopping $144,000 over a 10-year period over buying the same house; the present value of the benefit of ownership is about $142,000.
Fortunately, in Topeka, we have seen very few areas that have experienced price declines during this past recession, and even then, they are very minimal. We are fortunate to have a boringly stable economy in Topeka – while we haven’t seen the high appreciation during the boom years, we haven’t seen the high depreciation during the recession.
If you can afford to purchase a home, and you do it in a practical and educated manner, buying a home in Topeka can make great economic sense and be one of the smartest moves you can make. Home ownership builds wealth in two ways: through the forced savings of paying down a mortgage, and through appreciation — the rise in the homes value over time.
There is much to consider, and we can help you through that process – whether it’s professional representation in a purchase or fee-based consulting. But if we think it may be best that you don’t purchase a home at the current time, we’ll be the first to tell you .
