FHA loans have been making a big comeback in recent years, as they are a great way for people to purchase a home with minimal down payment (only 3.5%) and less-than-stellar credit scores. Unfortunately, many of my FHA clients who are looking for homes in the San Francisco Peninsula area can only qualify for a condo. The trick with condos is that the complex needs to be FHA-approved, and the process is not an easy one – lots of “red tape.”
I recently went through a very painful process of trying to get one of the bigger complexes in San Bruno approved for an FHA loan, but in the end, we were not successful and the transaction fell through. There was quite a bit of documentation needed to process the approval, and we actually managed to gather almost everything, but along the way, found out that the association decided they did not want to be FHA-approved and thus would not cooperate with an approval process. The reason I was told for this is that they had determined recently that a high percentage of homeowners who were in default on their HOA dues were those who had FHA loans when they purchased their units. I guess the rationale is that those who didn’t have as much money invested in their homes would be more prone to being delinquent on dues or even just walking away from the property altogether. Personally, I would think that being FHA-approved would expand the range of potential buyers and therefore lead to higher market value for the entire complex, but I can understand the concerns as well.
So while there are some benefits to FHA loans, be aware that you may be limiting your options if you are thinking about purchasing a condo. There are 5% conventional loans available now, which is something to consider and discuss with your loan agent as another option.
Here’s a great site from the U.S. Department of Urban & Housing Development, where you can look up which condos are FHA-approved: https://entp.hud.gov/idapp/html/condlook.cfm
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“Because Real Estate Is More Than Buying or Selling a House…”
Jean Joh
www.JeanJoh.com
To your point, it does decrease the range of potential buyers even further, but given the hit that condos/townhomes have taken over the past few years, it is understandable. FHA loan guidelines are already getting tougher. Effectively immediately, lenders are now required to provide a copy of the pest report for all FHA loans if mentioned anywhere in the contract/addendums OR on if a fee for the report or the pest repairs show up on the HUD-1. Finding out about needed repairs at funding review is not the situation any buyer/seller wants to be in, and constant communication is necessary.
Regards, Jean
I've busted my *** to put down 20% and find it insulting that someone would put down 3.5%.
The San Bruno complex is assuming the problem is the low down payment but the real issue is the credit worthiness of the buyer. They are doing a dis-service to their owners by limiting the buyer. As you noticed the prices at Crown Colony that allows FHA and rentals is higher and going higher than the San Bruno complex. Lee Ginsburg