While the housing crisis has created unprecedented opportunity for buyers, even those with bad credit, there are many who won't be able to take advantage of the opportunity to buy condominiums even at their drastically slashed prices. Complexes with lots of foreclosures (and perhaps loads of screaming deals) won't be eligible for VA, FHA, or other government housing loans.
If you are shopping for an affordable condo and plan to use an FHA or VA lender (people with bad credit will have a hard time finding financing that isn't backed by the government), make sure before you make your offer that your condo is approved by FHA. You can't get a government-backed loan on a condo without the complex being approved--either already on a list or on a case-by-case basis (often called a "spot" approval. If you are trying to get a first-time purchase through before the November 30th deadline, writing an offer on an approved unit is even more critical--FHA has been deluged with requests for spot approvals and they are not happening quickly. You can find approved projects HERE.
What makes FHA approve or reject a condo? If you've found a condo and want to see if you can finance it with a government loan, check the list first. If you don't find your project, call your mortgage loan officer and make sure that he or she gets an FHA condo questionnaire sent out immediately--you can see the importance of choosing a very responsive loan professional because someone who doesn't take action promptly can cost you a lot of money. You should be able to get a quick idea of whether the property is approveable or not, before wasting your time or money time and money trying to find out.
Here's what a condo should have to be approved for government financing:
- The whole condominium project must be complete, including all common areas and facilities.
- Control of the common areas must have been turned over to the homeowners association (HOA) for at least one year.
- The HOA mustprove that the project has the appropriate hazard, liability, and flood insurance.
- Individual ownership must be owned fee simple, with undivided ownership of common areas by unit owners.
- There must be no legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is unacceptable. Such restrictions include rights of first refusal and restrictive covenants.
- At least 90% of the units in the project must have been sold--the builder can't be sitting on a bunch of unsellable units.
- At least 51% of the units in the project must be owner occupied--not foreclosures owned by banks or rental units owned by investors.
- No single entity may own more than 10% of the units in a project unless ownership of less than four units would disqualify an otherwise eligible project. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time.
- Condominium projects consisting of 30 units or less can have up to 20% of the units encumbered by FHA insured mortgages.
Ineligible projects include condominium hotels or "condotels", timeshares or segmented ownership projects, houseboat projects, Multi-dwelling unit condominiums, and all projects not deemed to be used primarily as residential.
This system will be changing soon, with many more projects being approveable but no spot approvals will be issued after November 2nd, although rumors suggest that the deadline could be extended to December 7. And there will be some problems before everyone gets the bugs out of this new system.
