Can this condo be eligible for FHA?

December 13, 2018 9:30 PM

I love a condo in Denver. My Realtor and mortgage broker both say it's not approved, so no way I can make an offer. The building has not received approval, because "the market is strong" and they won't deal with the process. At this price, the only mortgage I'll qualify for is FHA. Is this correct? Other people have said I can apply on my own, not disclosing my type of mortgage in the offer. So confused! Any advice is much appreciated.
posted by 2soxy4mypuppet to Work & Money (10 answers total)

I'm not sure what you mean by the building not being approved, do you mean that you cannot get approved for a loan large enough to cover the expected price, or that the condo appraises lower than the amount you would need to borrow and they refuse to make a loan that wouldn't be fully covered by the value of the property?
posted by the agents of KAOS at 9:37 PM on December 13, 2018 [3 favorites]

Your realtor says "no way you can make an offer" - ignore this, mostly. Your Realtor is not your banker or your accountant. However, they may also know that the market is hot and the seller will get a cash or an already-secured loan offer before you can even begin the paperwork required for your financial situation.

Your mortgage broker says "no way you can make an offer" - Pay attention to this and ask questions. Will your mortgage broker say you can't make an offer because there's something wrong with either the pricing, the building itself, the terms, etc, that they believe makes it a bad deal? Do you not have enough of a downpayment for the loan to make financial sense to a solid lender? Is this actually out of your reasonable price range?

FHA - Do you have way too low of a downpayment? Are you at risk at missing payments or defaulting? FHA loans are designed to protect the lender from you not being able to pay your bills. FHA loans may also come with a high mortgage insurance cost attached (because if the only loan you qualify for is an FHA-backed loan, you're probably at higher risk of defaulting on your payments than most people based on your credit history, the cost of the property, your current income level, and your future income stability prospects). The mortgage insurance will make your monthly payments higher.

What's the situation, here? Are you going for a property that real estate folks are telling you that you can't actually reasonably afford?
posted by erst at 10:52 PM on December 13, 2018 [1 favorite]

The issue is condo rules for FHA loans. They won't guarantee a loan on a condo unless the association meets certain criteria. Before the financial crisis, I believe it was more than 50% of the units had to be sold. Now I believe there are owner-occupation rules among other issues that many associations can't meet even if they wanted to do the paperwork.
posted by wierdo at 11:06 PM on December 13, 2018 [7 favorites]

To be more concretely useful, look elsewhere. FHA requirements are often fudged, but not the hard and fast ones, only the things that can be classed as a judgement call. That said, the rules are there for your protection just as much as the bank's. Non-conforming proeprties are much more likely to be money pits you can't afford to maintain. Or in the case of a non-conforming condo association, you're more likely to find yourself on the wrong side of a very expensive dispute with the developer or an impossibly large assessment.
posted by wierdo at 11:10 PM on December 13, 2018 [2 favorites]

I was reassured by my mortgage broker that my 10% down mortgage for a condo would be totally fine because my credit was great and the building was selling well. He was completely wrong and the building didn't pass FHA rules because it was 50% commercial and 50% residential. Because of that no one would give me PMI insurance, I missed my original closing, and had to scrounge an extra 10% down by begging family members. Glad I did, I like my condo a lot. But that month was horrilbly stressful

So I guess my advice is that FHA rules are actually a big deal, but also that you shouldn't always trust your mortgage broker
posted by JZig at 11:53 PM on December 13, 2018

I looked at renewing our FHA certificate, and it wasn't worth the hassle and expense. It's not something we'd tackle for a single sale. (Also, listen to wierdo. Condos can be a terrible money pit. Being certified is a good sign, and still not a guarantee.)

My take - if you only qualify for an FHA mortgage, you need to look at certified properties. Otherwise the deal will fall through when you need the certification, and the owner can't get it.
posted by mersen at 3:21 AM on December 14, 2018 [1 favorite]

The condo I owned was in a non-conforming building - we had the residency requirements, but there were also (expensive) audits required and a sizeable cash reserve necessary. We kept talking about getting it done but there was always another building repair and the association never quite got there before I sold it (for cash.)
posted by restless_nomad at 6:57 AM on December 14, 2018 [1 favorite]

Sorry, hit post too soon. I definitely could not get an FHA refi and had I not found a cash-only buyer, it might have been pretty tricky to sell. But the market was super-hot, and I found a cash buyer quite fast.
posted by restless_nomad at 7:02 AM on December 14, 2018 [1 favorite]

Response by poster: Thank you, that's exactly the information that I needed. I really like this unit, but I'll keep looking.
posted by 2soxy4mypuppet at 7:22 AM on December 14, 2018

Note: you can check for condo project approval status yourself on HUD's website . Be sure to change the status field to approved or it will show you ones with expired approval; those are also ineligible for FHA financing.

FHA is looking at allowing financing on single units in projects that aren't approved, but unfortunately that's probably (at least) several months away.
posted by tinymojo at 2:56 PM on December 14, 2018 [1 favorite]