FHA Guidelines for Condo Purchases

Has anyone seen these guidelines/conditions for condo loans? Curious to hear comments as they are quite unbelievable: FHA Guidelines: Having a project FHA approved allows the developer to tap a larger pool of buyers as the down payment requirement is less for FHA loans then conventional loans. However recent changes issued by FHA in October 2009 have made it more difficult to obtain FHA financing... [more]

Has anyone seen these guidelines/conditions for condo loans? Curious to hear comments as they are quite unbelievable: FHA Guidelines: Having a project FHA approved allows the developer to tap a larger pool of buyers as the down payment requirement is less for FHA loans then conventional loans. However recent changes issued by FHA in October 2009 have made it more difficult to obtain FHA financing on large new projects. 1. There will be NO more spot approvals after February 1, 2010 2. All development not considered primarily residential are out. For instance, a development with more than 25% of the total floor area dedicated to commercial business use is out. **3. Noise issues is a new concern, so any development within 1,000 feet of a highway, freeway, or heavily traveled road, 3,000 feet of a railroad, 1 mile of an airport, or 5 miles of a military airfield will become ineligible for approval. 4. If the property has an “unobstructed view , or is located within 2000 feet of any facility handling or storing explosive or fire prone materials, it is not insurable - we're not talking just fireworks factories here. A gas station 2 blocks away can disqualify this development. 5. Any property located within 3000 feet of a dump, landfill, or superfund site, is ineligible. 6. No more than 10% of the properties can be owned by a single investor, including builders or developers who are renting out or have not yet sold vacant units. For 2-3 unit developments, no one can own more than one unit. 7. No more than 15% of the homeowners can be more than 30 days late on their homeowner dues. 8. For new developments, at least 30% of the units must be sold prior to applying for FHA approval (valid presales include those with purchase agreement and lender validation of an approved loan in process) 9. A minimum of 50% of the units must be owner occupied or sold to owners who intend to occupy as their principal residence. 10. Projects in designated wetland and flood zones will not qualify. 11. All current condominium project approvals will be invalid (with the exception of projects approved on or after October 1, 2008) and projects must be re-approved under the new options available. Going forward, all projects will require recertification every two years. Conventional Condominium Loan Guidelines: In addition to changes in the general guidelines issued in the summer by Fannie and Freddie, there are additional guidelines for condominium projects seeking loans of $729,750 or less: 1. For new construction and converted new condo developments, 70% of the units must be pre-sold (closed or under contract). This is a tough requirement for most projects. 2. No more than 15% of a condo project units can be more than 30 days delinquent on HOA dues. This is an existing guideline that is now being applied to new condo projects. The calculation was also changed from being 15% of HOA fee payments to 15% of total units. 3. Fidelity insurance will be required for condos with 20 or more units, ensuring that homeowner association funds are protected. Presently, this requirement applies to new projects and is now being extended to include established condos. 4. A requirement that borrowers must now obtain a condo-owners insurance policy unless the master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condo-owners policy, known as an HO-6 policy, covers personal property, personal liability, and the physical unit from the studs and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider. 5. No more than 10% of a project can be owned by a single entity. 6. No more than 20% of a project can consist of non-residential space. 7. The homeowners association must have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible. 8. Buyers without at least a 25% down payment will have to pay closing cost fees equal to 0.75% of their loan, regardless of the borrower's credit score. Buyers with 20% down will need a credit score of 620 or more with a total overall debt ratio 45% or less of gross monthly income. The FICO required for the best rates has increased to 750 from 720. Depending on your FICO score there are additional fees that can be as high at 3.5% of the loan. [less]