FHA Loan Guide

Over the last few years, FHA loan policies have been different for condominiums.  Recent changes in the way the Federal Housing Administration approves home loans for condominiums have left many would-be homeowners out in the cold, at least temporarily. That’s because the FHA will no longer approve a mortgage for a unit in a community that does not comply with new, stringent standards that went into effect on February 1st. In order to be certified as a compliant community, the condo association must apply to the FHA become certified as meeting all the standards. An FHA mortgage lender can also apply on the condominium community’s behalf to get this certification.  The FHA doesn’t make loans itself, but it does ensure home loans made to people with small down payments or less than perfect credit. This is why among first-time buyers, FHA mortgage loans are often the only option for buying a home.

Lemar Wooley, an FHA spokesman, said the new regulations were put into place because Congress changed the law, allowing FHA guidelines to make approvals of loans to condominium buyers more similar to single-family home-loan approvals. “The “Housing and Economic Recovery Act of 2008′ (HERA), moved the condominium authority from Section 234 to Section 203 to allow for more flexible condominium policy guidance,” Wooley said. “”Because of this change in law, the Federal Housing Administration (FHA) is implementing a new approval process for condominium projects and insurance requirements for mortgages on individual units, as authorized under Section 203(b) of the National Housing Act.”Wooley explained that Section 234 was a special section dealing specifically with condominiums. Section 203 provides general guidance for single-family homes.

Announced in November, the new regulations fall into three broad categories, according to Orest Tomaselli, the president of National Condo Advisors, a consulting company that works with condominium associations to help them meet the regulations.  First, he said, the community must demonstrate it has a budget reserve that is equal to 10 % of its annual budget. The reserve exists for repairs and maintenance of the common property and plant – the sidewalks, roofing, siding, windows, swimming pool, tennis courts, clubhouse or other facilities. If a community does not have or want such a large reserve, Tomaselli said it can hire an engineer to study the community’s needs and recommend a lower amount. If the FHA accepts the engineer’s study, a lower reserve amount can be set for that community

Second, the condominium community must meet new flood-plain requirements set forth by the Federal Emergency Management Agency. If the community is not in a flood plain, this is not an issue. However, when FEMA redrew its flood maps recently, it expanded the areas it believes will flood. Within those areas, buildings can still comply if the community has flood insurance and the highest living space is 10 feet or more above the flood plain. Or, the community can hire an engineer to file a “Letter of Loan Amendment,’ which, in effect, demonstrates that the FEMA guidance needs adjusting in their case. If FHA accepts this amendment, the community can be certified.

Third, the community must meet certain ownership requirements. At least half of all the units in the community must be owner-occupied, and no one investor can own more than 10 % of all the units. In the case of a community that is still being built, a certain %age of units must be presold.  Tomaselli said that the requirements aren’t really bad. Having sufficient capital reserves to meet maintenance needs is wise. Having most of the units occupied by the owners also ensures that the community will be well looked after. And flooding in some areas has been more frequent in recent years. But that doesn’t change the fact that these regulations have hit hardest those with the least ability to pay for engineering studies or increased budget reserves.

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The 203k FHA mortgage is a unique loan that enables a new homebuyer to finance the purchase and rehabilitation of a house in the same home loan.  A part of this FHA loan is used to pay off the seller and their mortgage lender.  While the remaining FHA home loan amount is wired to an escrow account set up to fund the home remodeling and rehabilitation.

HUD has specific guidelines for these FHA home improvement loans have follows details:

• The house must be at least twelve months old. 
• The cost of rehabilitation must be at least $5,000, but the total property value including the cost of repairs – must fall within the maimum limit for FHA loans. 
• The 203(k) FHA loan must follow many of the 203(b) eligibility requirements.  

Talk to a FHA mortgage lender about specific home improvement plans, contractor structural guidelines and your eligibility as a borrower.

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Mortgage refinance loan activity has peaked at an all time high over the last six years due to rising home values and low interest rates.  The FHA Refinance program is designed to provide an FHA alternative to the commercial products currently being offered to homeowners with substantial equity in their homes.  The purpose of these FHA home loans is to take out a new mortgage that provides cash left over after the old home loan has been paid off.

The FHA loan requirements demand that the applicant for a cash-out refinance loan has occupied the premises for at least twelve months and that payments on the existing home loan have been on time for at least one year. Cash-out refinancing cannot be more than the FHA loan limit for the area of the house being refinanced.  The other limit to the amount of a refinance loan may come from the mortgage lender.  Many of them limit total indebtedness on a property to 80% of its present appraised value.  That means your new mortgage, plus any other mortgage liens you have against the property, cannot total more than 80% of the home’s worth.

If there is a second mortgage on the home, it must be subordinated to the new FHA mortgage loan.  The homeowner will have to meet the mortgage lender’s requirements for ability to pay on both mortgages; generally that means the loan applicant must meet the lender’s cap on mortgage payments in relation to total monthly debt.  All borrowers must meet certain credit requirements on these loans, and any co-signer on the cash out refinance loan must also be owner occupied on the property.  These FHA mortgage loans are limited to homes with a maximum of two living units. 

The credit requirements are generally those set forth by the FHA mortgage lender.  Because most traditional home loan lenders have tightened up their requirements recently, it is going to be important to shop for a loan with both a decent interest rate and reasonable credit requirements.  A few lenders still allow bad credit mortgage loans with the FHA lending guidelines, but usually they have a significant amount of equity and positive compensating factors.

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