FHA Recertification and Your Community Association
The Federal Housing Administration guarantees home certain loans offered through conventional lenders, these are known as FHA Loans. These unique loans allow homebuyers to use a smaller down payment and sometimes to have lower credit scores than lenders typically require for conventional mortgages. Traditionally, FHA guaranteed loans for condo purchases only if the entire association had been approved for FHA financing, but new regulations in 2019 introduced single-unit approval processes to help owners find affordable options even if a community has not met the overall recertification standards.
Why is FHA Certification Important?
It might seem like a lot of work to get recertified, which makes many people wonder why the association would even bother. The housing industry is heavily concentrated with FHA financing, and makes this is a primary reason for communities to seek recertification. Projects that do not allow FHA financing cut their pool of potential buyers down significantly. Rather than taking that risk, most associations attempt to recertify unless they know that they have issues that HUD will not allow. The largest issues are homeowners that are more than 60 days past due on their association dues, investor-owned properties, and litigation against the property.
In an effort to promote affordable and sustainable homeownership, especially among credit-worthy first-time buyers, the Federal Housing Administration recently (October 2019) published a long-awaited final regulation, and policy implementation guidance, which establish a new condominium approval process. Designed to be flexible and responsive to market conditions, FHA's new condo rule and the new Condominium Project Approval section of the Single Family Housing Policy Handbook, provide a comprehensive revision to FHA condominium project approval policy. In particular, the new policy will allow certain individual condominium units to be eligible for FHA mortgage insurance even if the condominium project is not FHA approved. The restrictions on single unit approval may be more restrictive than previously thought and a full declaration can be found on the Housing and Urban Development website.
Why is Recertification Necessary?
As previously mentioned, the FHA certification is only good for two years before the association will need to get recertified. The requirements for condo approval have to do with the following items:
- The number of owners occupied properties
- The number of units one investor owns
- The number of vacant properties
- The budget of the association
- How the association spends their money
- The number of homeowners that are delinquent on their homeowner’s association dues
- The amount and type of insurance the association holds
- The legal action taken against the association
If HUD or FHA find that there are issues with any of the above items, certification might not be reissued for the association, which would mean new potential homeowners for that building could not obtain FHA financing. This is limiting the number of buyers interested in the property and can result in longer than market vacancy periods.
How to Get Recertified
FHA approval can take up to 30 days from the date of application, so it's important to set up reminders for when your community needs to apply. HUD offers some specific guidelines for getting recertified on their website, and you can access a fillable form for recertification. Some of the items you will need to have ready are listed below:
- Legal name, address and contact information for the association
- Details about the project completion dates, including whether the community is still under developer control
- Total number of units in the community, units that are owner occupied, units that are secondary residences, units that are vacation properties or otherwise owned by a non-resident.
- Any amendments that are recorded with the county since the completion of the community
- Total number of units that are more than 60 days past due on assessments, and total units that are bank owned due to foreclosure
- Financial and contract documents like the annual budget and management company agreements
- Insurance certificates and detailed policy information
- Documents relating to any current litigation the community may be involved with at the time of application.
It may seem like a lot of additional work for your community, but recertification ensure the widest possible buyer pool for your community and helps with the affordable housing crisis that is currently affecting our communities. Your team at RealManage is happy to help with your recertification process and ensuring that it is the right decision for your community.