While there are not many FHA approved condo projects in Orange County, CA, it is possible to get an FHA loan on a detached condo, even if the condo project is not FHA approved. In most cases, to get an FHA loan on a condo, the entire condo project needs to be FHA Approved. Project approval is not a fast process and can end up being an obstacle for potential home buyers using the FHA loan program.
The end of FHA Condo Spot Approvals
Prior to 2010 it was possible to buy a condo with FHA financing even if the project was not approved by getting a "Spot Approval" for the individual unit being purchased. The Spot Approval process was fairly easy (compared to the current condo project approval process) and was commonly used. But with the release of FHA Mortgagee Letter 2009-46b, new condo project approval guidelines were spelled out. Effective February 1, 2010, the Spot Approval option was eliminated.
So now, FHA financing on a condo first requires the project be FHA approved. The exception is if the property is a "Site Condo".
What is a Site Condo?
A Site Condominium has traditionally been referred to as a condo that is detached on all four walls. FHA actually clarified it's definition of a Site condo in FHA Mortgagee Letter 2011-22.
Condominium project approval is NOT required for Site Condo's meeting ALL of the below defined requirements:
- Single Family totally detached dwellings (no shared garages or any other attached buildings or e.g. archways, breezeways); and
- Are encumbered by a declaration of condominium covenants or condominium for of ownership; and
- The condominium unit consists of the entire structure as well as the site and air space and are not considered to be common areas or limited common areas; and
- Insurance and maintenance costs are totally the responsibility of the unit owner; and
- Any common assessments collected will be for amenities outside of the footprint of the individual site.
Condominiums that do not meet all five requirements will require full condo project approval.
Orange County is full of "Site" condo projects, as well as condo projects that have a few Site condo's within them. There are some newer projects that look like Single Family but are actually "condo's". But knowing that just because some neighborhoods are built as condo's doesn't mean FHA financing can't be used by a home buyer is important.
It is important to note that the VA loan program does not allow for financing on a Site Condo unless the project is approved. The good news is that the VA condo project approval list is much bigger than the FHA list.
More good news is that underwriting guidelines are loosening up enough that there are now viable alternatives to the FHA loan program for buyers that have at least 5% down for loans to $417,000, or 10% down for loans above $417,000.
Authored by Tim Storm, a Orange County Mortgage Loan Officer MLO 223456 – Please contact my office at the Home Point Financial. Direct line at 949-640-3102. www.OCHomeBuyerLoans.com