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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