Defined. The FHA is a government-owned insurance company. It does not loan money; it insures loans for buyers who cannot afford a conventional down payment. FHA insured loans now account for more than half of all new home loans. With an FHA insured loan, buyers can obtain:
- low down payments (3.5% of the purchase price vs. 20% for conventional loans),
- low closing costs,
- easy credit qualifying, and
- loans up to $625,500 (up to $765,500 in high-cost areas).
Project Certification. Project certification applies to condominium projects not planned developments. Certification of the development means the association meets guidelines established by the FHA which it believes will reduce the risk of default on home loans insured by the FHA in that development. Once the association has been certified, buyers of condominiums in the development can apply for FHA insured loans. It does not mean buyers automatically receive FHA insured loans, they must still qualify as buyers.
Certification Requirements. Following are some of those requirements (readers should check the FHA website for complete and up-to-date information). Also, new Fannie Mae requirements related to condominium deferred maintenance and safety may impact requirements:
- Single Investor Ownership. For properties with more than 20 units, no single investor, entity, or related party may own more than 10% of the units within the project. For properties with 20 units or less, no individual owner, entity, or related party may own more than one unit.
- Owner Occupancy
- 2-4 units: 75% of units must be owner occupied.
- 5 or more units: 50% of the units must be owner occupied.
- Commercial Space must not exceed 35% of the project’s total floor area. Exceptions can be made when the commercial space is above 35% but does not exceed 49%. Additional requirements must be satisfied to be granted an exception.
- the project must not be subject to pending litigation in which the project sponsor is a named party and that relates to the safety, structural soundness, habitability, or functional use of the project (construction defect litigation).
- the project must not be subject to pending litigation not covered by insurance or litigation that will exceed insurance coverage amounts.
Signer Certification. FHA documents require an authorized association representative to certify that: (i) to the best of their knowledge and belief, the information and statements contained in the condominium project application are true and correct; and, (ii) they have reviewed the condominium project application and it meets all current Federal Housing Administration (FHA) condominium approval requirements; and (iii) they have no knowledge of circumstances or conditions that might have an adverse effect on the project (including but not limited to defects in construction; substantial operational issues; or litigation, mediation or arbitration issues).
Certification Expiration. Project certifications are good for three years, at which point they expire. Condominium boards should begin the recertification process before the expiration so as to avoid gaps. Recertification can begin up to six months prior to the expiration date. For more information, see the FHA mortgagee Condo Approval Guide on the their website. Standards vary for associations still under developer control and for condo conversions. To find out if your association has FHA approval, go to the FHA website.
Single Unit Approvals. Individual buyers can also apply for certification in the event the project itself is not certified. Following are key elements for approval:
- No more than 10% of units may have an FHA insured mortgage. The concentration rate can be found on the condo lookup section of HUD.gov
- The SUA criteria is exactly the same as a Full Project Certification. If the Condominium Project does not qualify for Full Project approval, they will not qualify for SUA.
- The project must have a least 5 units.
- The application must be completed each time an applicant requests a SUA within a condominium project that is not FHA certified. Prior SUA applications cannot be used.
Annual Budget Disclosure. Condominium associations must disclose annually whether or not the association is FHA/VA certified.
Recommendation: Condominium associations that wish to become FHA certified should seek the assistance of companies such as www.FHAreview.com that specialize in sheparding applications through the FHA. Boards can find them by doing a Google internet search for "Condo FHA certification."
ASSISTANCE. Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.