FHA Approval Benefits

Why is FHA Approval Important?

Until recently, spot approval enabled an FHA loan for a single condominium or townhome unit to be possible even if the entire development was not FHA approved.

FHA eliminated spot approval on February 1, 2010. Now an entire condominium development must apply to HUD and be granted FHA approval before a buyer can purchase a unit in an association with an FHA loan or before an existing unit owner can refinance into an FHA loan.

In 2006 FHA loans accounted for less than 2% of the mortgage market; now almost half of all new loans are FHA.

With 87 percent of home buyers indicating that they plan to use FHA loans, condominium and townhome associations that are not FHA approved are missing out on a significant pool of prospective buyers.

Many buyers today can only purchase with an FHA loan because of the lower down payment requirements (see below).

First-time homebuyers make up a significant segment of the condo and townhome market. These buyers are most likely shut out of the market without FHA approval.

With a bigger pool of buyers, units will sell faster and command higher prices due to the law of supply and demand.

Higher sale prices mean higher appraised values for all units in the development (because of comps).

Without FHA approval, units for sale can remain on the market for an inordinate amount of time and sell for below-market prices due to reduced demand.

Lower sale prices = lower appraised values for all units in a development (because of comps).

Besides purchase and refinance loans, other FHA-backed loan products cannot be obtained without FHA approval (debt consolidation, reverse mortgage, rehabilitation loan, etc.).

With FHA approval, your association will have something that competing associations don’t have, namely an edge on sale prices. You’ll also give prospective buyers and owners added reassurance, since being an FHA-approved condo or townhome development means a safe investment and an association that is on good financial footing.

Why are FHA Loans so Popular?

FHA loans require only a 3.5% down payment, the lowest of any loan program available. A conventional loan typically requires a 20% down payment.

FHA loan credit qualifying requirements are easier to satisfy.

Maximum FHA loan limits have recently been increased to as much as $793,750 (depending on region), allowing many more units to be purchased with FHA loans than ever before.

The general unwillingness of today’s lenders to extend credit with respect to conventional loans and residential real estate in general means that many borrowers find FHA is their best bet. Lenders don’t seem to mind lending when the federal government (FHA) insures the loan, assuring them of repayment in case of default.

Unlike other mortgages, FHA loans are fully assumable. This means that when a seller with an FHA loan sells his or her property, the loan and its financing terms (interest rate) can be transferred to the new buyer. This unique feature will certainly make a property more valuable and easier to sell in times of rising interest rates.