New FHA/VA Guidelines for Condos

Condo Sellers and Buyers who are looking at purchasing a condo with an FHA or VA loan need to be aware of the new guidelines put into place by the Federal Housing Administration (FHA) last December.  Here is a  list of some of the new rules:

• The seller must have the condo management company fill out a questionnaire which can cost between $50 and $200 depending on the management company.  Some Associations are slow or not easy to work with in getting the form done which can seriously impede the buyer’s loan approval.
• No more than 15% of the total units can be in arrears (more than 30 days late) of their association dues.
• At least 50% of the units must be owner-occupied or sold to owners to intend to occupy the units.
• No more than 25% of the property’s total floor area can be used for commercial purposes.  In addition the commercial portion must be homogenous with residential use and free of adverse conditions to occupants.
• No more than 10% of the units may be owned by one investor – which also applies to developers/builders who rent vacant and unsold units.  If there are 10 or fewer units in a project, no single entity may own more than one unit in the project.
• Common elements within a facility/project must be 100% complete.
• The project must be covered by adequate insurance (hazard, flood, liability, and others as required by law) that meets the requirements of coverage established by FHA with adequate reserves.
• The condo project must not be in litigation.
• Purchaser must have contents insurance coverage – called an HO6 policy.

If the HUD website shows that a particular condominum project is “approved” each individual unit must be “re-certified” under the new guidelines when a contract for purchase is received.  Every FHA loan must meet the new guidelines regardless if another unit in the same building/development was recently sold and approved.

Keep in mind that if one or some of the new guidelines (I’ve given only a partial list here) are not met, financing will not be available.  Please check with your lender for more information.