FHA Condo Spot Approvals
On October 15th, HUD announced that they are allowing “spot approvals” on single units for FHA loans within a Condo Association that otherwise would not allow FHA financing. This means that a single unit in a condo association that is not FHA approved could theoretically qualify for an FHA buyer. Of course this could potentially be a big boost for condominium owners looking to sell as it would drastically increase their buyer pool. It would also benefit buyers who can only qualify for FHA loans as they would be able to expand their search. This all sounds wonderful; but as you may have guessed, this is not as simple as it appears.
The FHA Condo Approval method was developed by HUD to give some assurances that the Condo Associations were financially stable and properly managed. Essentially, it has been a risk management tool to guard against potential foreclosures on FHA insured loans in Condominium Associations. Just because HUD is going to allow spot approvals does not mean that they won’t require the same information from the Condo Association. The difference here is that they will put the onus on the lender and the Condo Association to document all the specifics on the Association — many of which are difficult to obtain.
One of the major hurdles to completing a spot approval is that the lender needs to obtain and document how many of the units are financed with FHA loans and how many units are owner occupied. This information will be very difficult to obtain as the HOA most likely would not know that. Also, FHA won’t provide lenders with that information. It will require extreme cooperation with the HOA in order to make a spot approval really come to life.
The time frame of getting a Condo Association approved (different from a spot approval) can be anywhere from a few weeks to a few months . . . it all depends on how readily available the information is. The challenge with the spot approval is that all the same information will be required. If — and this is a big if — the information can be obtained by the lender and the HOA, there is another variable as far as how long it will take to get the spot approval completed. Many people in the mortgage industry do not feel as though they will be able to find this information, and that raises concern about the logistics of actually obtaining a spot approval on a sole unit.
I think that most of us can agree that having more FHA approved condos will be a good thing for buyers and sellers alike. The real challenge with this new change is how the lenders are going to verify the information that FHA will require for a spot approval. With any new change comes a learning curve, and this is no different. As everyone begins to put time and energy into spot approvals, more issues and difficulties will be drawn to light. Also, success stories will be shared which will hopefully guide others in the right direction. With a change such as this, it is important to remain patient and limit expectations if you are attempting to get this accomplished for a potential seller or buyer.
David Fuchs, Traditions Mortgage
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