Requirements For Selling Condos to a Buyer With an FHA Loan

A number of owners of condos are reporting problems selling when the buyer tries to obtain an FHA loan to buy the property only to be turned down because the development is not on the FHA's approved list. Before new rules went into effect in February, the FHA had allowed "spot approval" for individual units within non-FHA approved developments. Under the new rules, however, the entire development must be approved before an FHA loan can be obtained for individual units.

The FHA's goal is to verify the financial well being of the developments associations and to make sure there is no discriminatory language in its governing documents which would constitute a breach of federal or state laws. The process of approval can be a lengthy one, so those looking to sell fast are advised to find a buyer who does not plan on seeking an FHA insured loan.

Other rules apply, as well. Certain types of lawsuits, such as construction defect litigation, are a red flag for the agency. Also, no more than 10 percent of the units may be owned by one person, and at least fifty percent must be occupied by the owner. While it is possible for an association to obtain approval on its own, it is advisable to hire a firm that specializes in these matters. The process can be very complex and intricate, and mistakes along the way can be costly to the success of the approval process.

Also, most associations have within their rules that the decision to apply must be voted on by the association's members, meaning more potential delays to the process while those in favor seek to convince those apposed. Either way, an FHA approval firm can really make the whole process smoother and increase the chances of success.

Meanwhile, new legislation designed to save homeowners with underwater mortgages, meaning they owe more on the loan than the value of the home, appears to be well received by lenders. The legislation, which is set to be implemented in the fall, is voluntary, though lenders have voiced support for the measures.

The program would allow any borrower to refinance into an FHA-insured loan, and lenders approve because they would be off the hook if the borrower defaults. The plan would transfer the risk to the government, and would be open to all homeowners, whether their current loan is insured by the FHA or not. The plan would require lenders to write down the principal of the original first lien by at least ten percent. Up to $14 billion so far has been dedicated to the program.

For those homeowners looking forward to taking part in this program, they will be required to be up to date on payments. Full documentation of income and debt will be required as well, even if the current loan was obtained with less than that. Also, total monthly debt payments, including car payments and credit card bills, cannot exceed 50 percent of total income.

Ruth Mills specializes in the buying and selling of La Jolla homes, La Jolla condos, and Coronado condos. She began her real estate career in La Jolla in 1976 and has continued to be one of the areas top agents year after year.