The FHA Spot Approval program for unapproved condominium projects is going away on October 1, 2009. But realistically, it's already gone. Most lenders are not about to begin the Spot Approval process when only a few weeks remain. According to the new guidelines announced in Mortgagee Letter 2009-19, effective October 1, not only is the Spot Approval process eliminated, but also all current project approvals will be invalid and projects will need to be re-approved before an FHA loan can be closed. The only exception to this is that any project that has been approved after October 1, 2008 will stay approved.
What Does This Mean for Orange County, CA Condo Projects?
This will mean that virtually no condo projects in Orange County, CA will be approved for FHA financing. Over the past year, if a condo project was not approved, the quickest way to get the deal done was to use the Spot Approval process. But this process was only for individual units, not the whole project. Getting projects back on the approval list will be a long slow process.
Interesting side note. There is a separate Orange County, CA approval list for VA condo's. This will be a big advantage for VA home buyers searching for a condo to purchase. VA will be just about the only way to buy a condo in California with less than 20% down payment.
Get Those FHA Approved Condo Listing Sold Before October 1!
Realtors who have a listing in an FHA approved complex and are planning on accepting FHA offers should do anything they can to get their listing in escrow prior to October 1. After that, it will still be possible to get FHA financing, but expect a long escrow.
What Needs to Be Done In Order to Get a Condo Project Approved?
Your favorite Orange County, CA Direct FHA Lender will handle getting the project approved. Below are the project eligibility requirements.
•· Projects must consist of 2 units or more.
•· Projects must be covered by hazard and liability insurance, and flood insurance if applicable.
•· No more than 25% of the property's total floor area can be used for commercial purposes.
•· One investor may own no more than 10% of the units. This applies to developers/builders that rent vacant and unsold units.. For two and three unit projects, no single entity may own more than one unit;all units and common areas must be 100% complete; and only one unit can be conveyed to non-owner occupants.
•· No more than 15% of the units can be in arrears (more than 30% past due) of their HOA dues.
•· At least 50% of the total units must be sold prior to endorsement of any mortgage on a unit.
•· At least 50% of the units must be owner occupied or sold to owners who intend to occupy their units.
•· Projects of 3 or less units will have no more than one FHA insured unit.
•· Projects of four or more units will have no more than 30% of total units insured by FHA.
•· A current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance. The reserve study must have been completed within the past 12 months.
There are a few additional considerations, but the items above cover the most important issues for the typical condo complex in Orange County. And then, of course, any current litigation against the condo complex may be a deal killer.
How Long Will it Take to Get a Complex Approved?
That's a tough one to answer. Lenders are not even allowed to get a jump on the approval process and submit a condo package until after October 1, 2009. The fear is that HUD will be buried with condo project approval requests. There are 2 processes lenders can go through to approve a complex, but, at least in the beginning, most approval request packages will be sent directly to the HUD office in Santa Ana, CA. It would be great if the process took two weeks (from the time of submission).
FHA is still just about the only way for a home buyer to purchase a property in Orange County with less than 20% down. It is very difficult to get PMI on a Conventional loan on a condo at even 85% loan to value, and that's assuming a 740 FICO score. FHA can generally go as low as a 620 FICO and up to 96.5% loan to value.
FHA is Not Going Away
None of this should scare anyone away from FHA financing for a condo. But it is a warning that the loan process will take a little longer than normal for Orange County home buyers purchasing a condo.
Contact us for your Orange County FHA Mortgage:
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