FHA Elibibility Madness

FHA was formed in 1934 to create a national financing system by insuring mortgages for a fee paid by the lender.  The insurance is only available if the loan meets certain requirements.  At least 30% of mortgages are insured by FHA so their guidelines are important and are shaping the way condominiums conduct business.

Recent changes the eligibility rules make it more difficult and even unlikely that a condominium will be eligible for FHA financing.  Here are some of the new requirements:

  • FHA requires that at least 50% of condos must be used as primary or secondary residence.
  • Vacation rentals are no longer considered a secondary residence.  Now a secondary
    residence is defined as a dwelling where the mortgagor maintains a part time
    place of abode which is not a vacation home and a person may have only one such
    secondary residence.
  • New rules regarding fidelity insurance will add significant expenses to the budgets of the association
    who will pay for their own plus the management company insurance through costs passed
    onto the association directly or through increased fees.
  • A Certification is required, signed by an association representative, that states, in part, that the project meets all state and local condominium laws and all FHA condominium approval requirements, whether there are circumstances that may have an adverse effect on the project or cause a mortgage to become delinquent, including but not limited to construction defects, substantial disputes or dissatisfaction among unit owners about the operation of the project or the owner’s association; and disputes concerning unit owner’s rights, privileges, and obligations.  The submitter must also agree to inform HUD of any material changes after approval.

The penalties for knowingly and willfully making false statements or entries in a HUD application
is a fine of not more than $1,000,000.00 and/or imprisonment for not more than
30 years making the stakes very high for any misstatements.

Contact me for a copy of the new eligibility requirements and an FHA/FNMA/FHLMC matrix.

Tom Simon, CMCA, AMS

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