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By G. Steven Bray
I reported last week on the new FHA rules for approving a single condo unit in an otherwise ineligible complex, FHA’s replacement for the old spot approvals. At the time, I didn’t have many specifics. Now I do, so let’s look at what it takes to get a single-unit approval.
FHA considers the following characteristics for single-unit approvals:
- At least 50% of the units in the complex must be owner-occupied, which includes second-homes that aren’t rented the majority of the year;
- The HOA must have a 10% reserve account;
- No more than 10% of the units may be owned by one person or entity;
- The complex may be comprised of no more than 35% commercial space; and
- No more than 15% of the units may be 60 days or more past due on their HOA dues.
And the really great thing is documentation of these characteristics generally is part of the standard buyer’s package the HOA provides to prospective buyers. With a single-unit approval, it’s the lender’s responsibility to make sure the complex complies with the rules, so the HOA doesn’t have to slog through FHA’s bureaucratic approval process.
Condos that receive single-unit approval are eligible for the same low down-payment options as other FHA loans, meaning a minimum down payment of 3.5%. The only exception to this is if the buyer’s financial situation is such that the lender cannot get an automated approval, in which case the buyer must make a 10% down payment.
Single-unit approvals really shouldn’t significantly affect the amount of time needed to close an FHA loan. FHA has a special process for registering spot-approval loans that may take up to 3 days. (Registration for other FHA loans typically is instantaneous.) However, this registration process is during the time when the buyer typically is gathering financial documents. Once FHA issues the “case number,” it’s the lender’s responsibility to make sure the condo qualifies.
