FHA Certification Update and Guidelines for Condominium Associations

In February of this 2010, an important change was made that could have repercussions for many condominium and town-home associations. Now entire associations must become FHA certified before purchasers can buy into their developments. Because almost one-third of buyers today use FHA loans, this change can have a drastic effect on the marketability of units in your association. Owners and board members need to be aware of this change and realize the effect it could have. If an association is not FHA certified, many buyers have to look elsewhere. We all know that todays real estate market needs as many buyers as possible.

The change came down from the Federal Department of Housing and Urban Development. It applies to FHA home loans. FHA (The Federal Housing Administration) was created in 1934 for the purpose of making home ownership easier to attain. Then, like today, the housing market was in terrible condition and needed help. Today, FHA loans account for more than 30% of all home closings and experts predict that percentage will increase.

FHA does not actually make the loans. Approved lenders do and FHA guarantees them. Because the loans are backed by the Federal Government the lenders risk is minimized. These lenders can thereby pass along this reduced exposure to their borrowers offering competitive loans featuring reduced rates, smaller down payments and easier credit approval. This makes the home buying process easier and opens up the market to many more potential home buyers. Many associations promote and advertise the fact that they are ” FHA Approved.”

In order to obtain FHA certification, associations need to meet certain requirements. There are some steps and work involved, but it should be worth the effort. It will allow your association the ability to tap into this large pool of FHA home buyers. The benefits can be immense.

In the past, FHA would consider each transaction and application individually. Each property would be inspected to see if it met FHA standards. That was called spot approval. The recent February 2010 change eliminates spot approvals. Now entire associations need blanket approval or “FHA Certification”.

Condominium and Town-home Associations may obtain FHA Certification if the following guidelines are met:

1.No one unit owner may own more than 10% of the units in the Association.
2.No more than 15% of the units can be more than 30 days past due on their assessments.
3.A full budget review will take place and it must be determined that 10% of the associations operating funds is allocated to reserves
4.Right of first refusal may be in the associations bylaws, but it cannot violate Fair Housing Act
5.Association must be at least 50% owner-occupied
6.No more than 25% of the floor space can be commercial space

Obtaining FHA Certification can be a tremendous catalyst for the marketability of your association. It will put your condo or town-home on the radar screen for many buyers. What was not obtainable may now be a possibility. Realtors will add your association to the list of places to show. The homes become affordable for so many more buyers. Sellers as a result will see an uptick in interest hopefully creating more demand for their units and a better overall selling market for the entire association.

Root Realty, as an experienced condominium management company, welcomes the opportunity to discuss the benefits of FHA Certification with your association. We can explain the process and review with you the steps involved in obtaining certification. Root Realty will be happy to assist in any way we can.