12/08/2009

Buying a condominium using an FHA loan has not been as easy as many home buyers would hope. FHA has required that a condominium project be reviewed under their guidelines before allowing anyone to use an FHA loan to purchase a unit. These guidelines have included some difficult parameters to meet for new condominium projects including 51% of all units sold or pre-sold in a given phase. Up until 2008 this was not a significant issue because there were plenty of conventional loan programs available with low down payment requirements. There were many banks approving projects for non-FHA financing in the initial phase of construction that had zero down loan programs. Since condominiums are primarily lower priced homes that attract first time buyers, these low and no down loan programs were crucial in making it possible to sell units. With these loan programs available with good terms for buyers, most condo developers did not bother to go through the difficult process of getting their projects approved for FHA financing. Therefore there are many existing projects that are not FHA approved and likely will not go through the process. They will not be approved unless the Home Owners Association decides to take up the task.

The importance of FHA approval on a project changed in 2008 when lenders and mortgage insurance companies eliminated the low and no down payment options. Most new projects are trying to get approved on FHA. The process has been extremely difficult as sales volumes are down and most first time buyers do not have the down payment funds required for conventional financing. Existing condo projects have the option to go through a process called an FHA Spot Approval for the sale of a unit on a case by case basis. The spot approval has strict requirements regarding money in the HOA's reserve account, review of By Laws, percentage of units that are owner occupied as well as number of units that already have FHA financing. The bad news about Spot Approvals is they were scheduled to end in December 2009.

In response to growing concerns that the condo market could have serious problems if sales volume did not increase, FHA has announced some changes in their guidelines for approving projects. They have also extended the deadline for Spot Approvals to February 1, 2010. FHA allows loan concentrations in a project up to 50% which is up significantly. FHA has lowered the pre-sale requirements for new projects from 51% to 30%. These can include pending sales with lender approval on all buyers. They have also decreased the number of owner occupied units to 50%.

The good news is Bellevue FHA mortgage rates and Seattle FHA mortgage rates are extremely attractive currently. With interest rates around 5.00% / 5.378% APR for qualified borrowers, affordability is at recent highs. Call the Eastside team to learn what you qualify to buy. We can also help determine if a project can be financed with an FHA loan.