Keith and Kinsey's Real Estate Update


Why Should A Condo Association Get FHA Approved?

Our condo association’s FHA approval recently expired and the condo board is currently debating whether or not to renew the qualification. Several of our board members have been rather opposed to getting the qualification with FHA extended. Although, the people opposed to this seem to view it as a low income housing program, which Is not the case at all. The board members have asked, “why would we want to get re-qualified?” I ask, “why wouldn’t we?” In my mind, the pro’s far outweigh the cons. In any case, I realized there are a lot of misconceptions out there about certain loan programs. So, here’s the real info…

An FHA mortgage is a loan provided by an FHA approved lender but backed by the Federal Housing Administration (providing additional security to the lender). This loan program only requires a 3.5% down payment (or equity for a refinance) for people with good credit scores. It is possible for someone with a weaker credit score to qualify for the FHA program with 10% down. The 3.5% down payment program is highly desirable to people that have the income to buy a home, but may not have much of a down payment (or those who just want to minimize their down payment).

FHA is not a low income housing program. It is merely a low down payment loan program. FHA still does a rigorous screening of loan applicants to check debt to income ratios, job history, income history, and credit. Maximum debt to income ratios are 31% for the mortgage and 43% in total debt. FHA even lends on properties up to $293,750 in Dane County.

So, why would a condo association want to be qualified for FHA?

  • FHA condo approval also qualifies the association for VA and USDA loan programs. This would open up a much larger pool of potential buyers.
  • Condo financing is actually more difficult than single family home financing these days. If people can’t get loans, it will negatively affect property values.
  • The more buyers there are capable of getting financing within a condo development the quicker units should sell and the stronger the home values should be.
  • Making refinancing easier for current owners will hopefully reduce the number of foreclosures- also helping keep values stronger.
  • Other agents keep asking us, “Is this development FHA approved? My buyer is looking for FHA”. So there is definitely demand.
  • Your association will have qualifications above the competition.

What are the misconceptions and questions of people opposed to getting a condo association FHA approved?

  • Won’t this bring in low income people? Answer: No, this is not a low income loan program.
  • Aren’t FHA buyers more likely not to pay their condo dues on time? Answer: No, they still have to meet similar debt to income ratios as conventional buyers. So, there’s no reason they should be less dependable.
  • Couldn’t these lead to more foreclosures since people can buy with less equity? I haven’t seen any statistics to prove this. In theory if units become easier to sell prices would increase and sales would improve. To me this means people in financial trouble would have an easier time selling, rather than walking away.

So again, what’s the downside of an association being FHA approved? I don’t know. All I see are benefits such as stronger prices, quicker sales, current owners ability to refinance, and an overall stronger association.

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