Is your condominium association FHA certified? Do you even know what that means?
Following the housing market crash in 2008 a number of new laws and regulations were put in place with the goal of preventing a similar future catastrophe. Unfortunately that created a unique new challenge for condominium associations that homeowners and other types of associations don’t face: A requirement to become FHA certified for buyers to purchase with FHA-insured loans.
Whereas single-family detached houses and other types of housing units in other types of associations are qualified or disqualified for FHA independently, condominium associations must have their associations approved as a whole. If they are FHA approved, buyers can get FHA-backed mortgages. If they aren’t, FHA mortgages can’t be used.
It might sound like a no-brainer, but FHA certification isn’t for every condominium community.
First, it’s expensive. To gather and compile the documents needed and submit the application is a lengthy process, typically undertaken by attorneys or specialty companies. The cost is usually in the low thousands of dollars. Likely, FHA will follow up the application with requests for additional documents, and this will take additional time and may cost additional fees.
Further, the board may have to radically alter the operations of the community to meet the qualifications. FHA requirements include certain insurance requirements, owner-occupancy rates, delinquency rates, reserve requirements and prohibit some rules from being enforced such as caps on rental units. The board may need to make changes to the budget and the association’s methods of operations to meet these standards. Worse, the board may not have the authority to do so because the conflicts are spelled out in the declaration or indenture, requiring an amendment to be approved by the owners before the changes can take place. This adds additional costs and time consumed to the process.
With the pitfalls of obtaining FHA certification, why would a condominium community do it? Simple: More buyers and higher home values. By introducing the possibility for FHA financing into the community you expand the pool of eligible buyers. With demand increased and supply fixed, the selling prices for condominiums in the community goes up. Higher home values work indirectly to enhance the value of the community as a whole. Helping matters, relatively few condominiums in the St. Louis Metropolitan Area are FHA certified, so by obtaining certification your association has the ability to corner a large and underserved market.
Before a condominium community decides to pursue or rules out completely the idea of obtaining FHA certification, it is wise to gather information on the requirements and bids from attorneys and specialty companies to make the application. If your community is professionally managed, gathering this information is a task your community association manager can perform. Because the process is so expensive and time consuming, it is best to know first if the association can qualify or if the steps to meeting the qualifications are practical and if the association can afford the costs involved. FHA certification requires periodic renewal and the requirements do change from time to time, so the costs, time and operational changes aren’t a one-time expense. It is arguably just as arduous to obtain recertification as it is to become certified in the first place.
Whether or not to apply for certification is a decision every condominium community must consider. Being certified makes sense for some communities and not as much for others. If your budget is inflexible and your communities rules are written as part of a governing document requiring an amendment and a vote of the owners to change, it may be too big a hurdle. If your community does have some budget flexibility to tailor it in a way that will meet FHA standards and any rules that may conflict are easily at the discretion of the board to change without substantial headache or expense, it can offer a significant boost in sales activity, home values and the desirability of your community.