I can’t tell you how many times we have worked with buyers who want to purchase a condo in a condo building that is not FHA approved, and thus they cannot obtain financing for a mortgage. They are so disappointed because it was the perfect condo for them. Seems ridiculous doesn’t it? A willing and able buyer wants to purchase the condo, but can’t get a loan, and thus the condo’s values plunge even lower because only cash buyers can purchase there.
Well what would cause a condo building not receive FHA approval you may be wondering?
- Many Tampa Bay condos were sold at the peak of the market in 2004-2005.
- Many apartment buildings also became condo-conversions.
- Because they were sold at the peak of the market, foreclosures have become rampant in these buildings (as they are in any community that had high growth during 2004-2005).
- Prior to foreclosure, often homeowners will stop paying their HOA/Condo dues. The homeowner’s lender is not responsible for these dues until the foreclosure process is complete (which in Florida can take a year or more) and they take ownership. Banks are often not responsible for back HOA dues, or only a small portion of what was owed. Because of this, a deficiency has now occurred in the HOA and they are severely underfunded. The possibility of large HOA/Condo assessments in the future looms.
- There are a large number of “non-owner occupants” in the building which occurs if the owners have leased the units and FHA sees the building now as full of vacation rentals instead of owner occupied homes.
The way the FHA and many lenders look at it is this:
Let’s say you buy a $200K condo with 20% down (minimum for FHA) and it drops in value 10% over the next year, and then the Condo Association hits you for a $40K one time payment to catch up their underfunded budget, the odds are you’ll walk away.
This is why banks are worried and why it has become so hard to get financing on Tampa Bay condos. Some lenders are allowing conventional financing with 20 to 50% down in certain buildings, but its best to check with your Realtor before falling in love with that waterfront condo that seems so inexpensive. Sometimes there’s a reason!
Currently, several trade groups have been pushing FHA to reconsider condo loan guidelines, including the National Association of Realtors.
In a letter to FHA Commissioner and Acting Assistant Secretary for Housing Robert Ryan, the groups petitioned HUD to eliminate a rule requiring a 50 percent owner/occupancy rate in a condo development for buyers to obtain FHA insurance, and to amend or temporarily suspend a requirement that allows only half of the units in a condo development to have FHA loans.
The Community Associations Institute, the Institute of Real Estate Management and the National Association of Home Builders joined NAR in petitioning for the change. In their letter, the groups point out that first-time buyers can often afford only FHA mortgages, and enabling these buyers to purchase condo units will stabilize developments and the surrounding community, as well as minimize the FHA’s condo-related losses.
One way you can check to see if a Condo building is FHA approved is by searching the HUD website. However if your Tampa Bay condo does not appear to be listed here, contact us and we’ll check on it for you.
We will keep you posted as to if and when the FHA changes their current rules on Condos!