With the recently changed FHA rules for condo financing, it has become a little more difficult for Orange County first time home buyers wanting to buy a condo. FHA recently made big changes to the condo approval process while at the same time eliminating the Spot Approval program.
First, a little background information on FHA financing and condo's. FHA has, for many years, required that condo projects be "approved" before allowing financing within the project. In the 70's and 80's, and even the early 90's, when a project was being built, the builder pay the expense of getting the new project approved, thus making it easier to sell the finished condo's to homebuyers wanting to use FHA financing. Most condo projects in Orange County were approved and it was rarely a concern that a project would not be approved. In the late 90's and for most of the last 10 years up until 2008, the Orange County FHA loan limits failed to keep up with property values, and alternative loan products allowing high loan to values and very easy qualifying took the place of the FHA loan program. In 2007, along with the collapse of the Mortgage Backed Securities market and the elimination of the easy qualifying program, the FHA program suddenly became viable again.
The only problem was that most newer condo projects had never been FHA approved, and even some of the older projects that had been approved and lost their approvals as a result of either a lawsuit against the Homeowners Association, high investor ownerships percentages, among other reason.
The Spot Approval Program
The FHA Spot Approval program did become popular in Orange County, CA in 2008 once FHA increased the loan limits from $362,790 to $729,750. Suddenly, almost every condo in Orange County fit within the FHA loan limits. The Spot Approval program allowed an individual unit to be financed even if the project was not FHA approved, provided certain conditions were met. Now, effective February 1, 2010, the Spot Approval program has been eliminated. This means that projects that are not FHA approved will lose out on a large segment of home buyers (almost anyone with less than 20% down, except for VA buyers, based on current lending guidelines), which will surely affect the projects property value.
New FHA Condo Approval Guidelines for 2010
On June 12, 2009, FHA issued Mortgagee Letter 2009-19, which gave the new guidelines for approval along with the method's used for approval, called DELRAP and HRAP. The guidelines were supposed to go into effect on October 1, 2009, but FHA delayed it until Dec 7. DELRAP (Direct Endorsement Lender Review and Approval Process) and HRAP (HUD Review & Approval Process) are now the method used for getting projects approved. The DELRAP process allows for a Direct Endorsed FHA lender to approve a condo project. However, there is a huge liability for the lender if it ever turns out that the project should not have been approved. For this reason, HRAP will most likely be the most commonly used condo approval process. A complete condo package will need to be put together and sent to HUD for approval. The length of time required to get a project approved will vary from region to region, but plan for 15 to 30 days from the day the condo package is sent to HUD.
How To Find FHA Approved Condo Projects in Orange County
The quickest way to find out if a condo project is FHA approved is to go to the HUD website and use the condo lookup tool. Choose the HRAP/DELRAP Approval method, and then narrow down the search by choosing state, city, and/or zip code. Projects that were approved prior to October 1, 2008, which will be nearly all projects in Orange County, will need to be "recertified", most likely through the HRAP method.
**Interesting thing going on right now. Orange County VA loan home buyerscan still use the VA approved list without having to deal with recertification. VA continues to have their own list.
Orange County real estate agents with listings in condo projects should contact the Homeowners Association to have them work on getting their project either recertified or approved. There are companies that specialize in helping association management companies take care of the approval and/or recertification process that should be consulted at the very least.
These changes will lengthen escrow closings, but shouldn't keep first time home buyers from purchasing a condo. Of course, the first thing a prospective Orange County home buyer should do is get prequalified for a mortgage. A loan officer can provide loan scenarios that will take into account a home buyers qualification, payment comfort level, and estimated HOA dues if they are thinking of purchasing a condo.
Contact us for your Orange County FHA Mortgage:
Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.
949-829-1846 | tstorm (at) ochomebuyerloans.com