Q: What does a condominium community have to do in order to receive Federal Housing Administration approval?
When a project has received FHA approval, it has satisfied multiple criteria for the Federal Housing Administration. These criteria include proving the condominium association is financially healthy through an independent audit of the association budget. It must also prove that primary and second-home purchasers are purchasing at the community because owner-occupied condominium communities tend to enjoy more stable property values than investor-owned communities. It must also certify that fewer than 15% of the condo’s owners are delinquent paying their condominium fees.
Q: Why is it important for me to bring my clients to communities that have FHA approval status?
There are many condominium communities with homes for sale in our area. What many real estate professionals do not realize is that not all condominium communities can offer financing to their clients. Often, you can get through the entire process of writing up a contract for sale only to realize that your client will not have any other option than to pay cash for the purchase. In today’s economy, this often means the loss of a potential sale and the risk of damaging an important client relationship.
When you bring your client to a community with FHA approval, you can have peace of mind that they have the ability to secure a low down payment, fixed-rate mortgage at competitive rates. FHA is the largest insurer of mortgages in the world, insuring more than 34 million properties since its inception in 1934. In the current lending climate, FHA financing is the most widely accepted mortgage option by commercial lenders, credit unions and private mortgage companies.
Q: What is Fannie Mae approval and what does a community have to do in order to receive it?
Fannie Mae approval of a condominium project means that loans secured by individual condominium units within the project are eligible for delivery to Fannie Mae, and therefore a secure investment for financial institutions. If Fannie Mae warrants its approval of a project, it certifies that the property is secure enough for Fannie Mae to purchase the mortgage loan.
In order to receive Fannie Mae approval, a community needs to provide proof the condominium association is financially healthy with fully-funded reserves, current residents are up-to-date on their dues, the community is primarily comprised of owner-occupants and second homeowners rather than investors, and a low percentage of renters are residing in the community.
Q: Why is it important for me to bring my clients to communities that have Fannie Mae approval status?
Most people do not realize that in today’s market, there are extraordinarily few condominium communities that have Fannie Mae approval for conventional financing (136 in Florida; 21 in Northeast Florida). In order to assist a client searching for a second home, Realtors need to determine that the community is Fannie Mae approved (warranted) in order to secure conventional financing for that client. Otherwise, the client must pay cash. FHA financing is not an option for second home purchases. For primary residence condominiums, buyers who have 20 percent or more to put down on their purchase, conventional financing makes sense as they won’t have to pay the monthly PMI fees. Unless the condo community is Fannie Mae approved, conventional financing is simply not available to these purchasers.
Fannie Mae approval signifies to a lender that a community is warranted and that Fannie Mae would purchase the loan. In the current lending climate, lenders aren’t offering conventional financing in non-approved condominium communities. Taking your client to a Fannie Mae approved community means they can qualify for competitive interest rates and a multitude of financing options.