The Importance of an FHA Approved Condo and Town Home Project

Never underestimate the importance of choosing an FHA approved condo or town home project when considering a real estate investment property. Being educated can save you big time! When purchasing a unit in a condo complex it is important to know the FHA Status of the property. To acquire a loan on a condo complex, your banker will require a couple of things; either a 20% down payment or an FHA approved condo complex. The importance of an FHA approved Condo and Town Home projectTo be an FHA approved condo complex, the Condo Association needs to apply for FHA status and of course pay some hefty fees to be added to the list.

Interestingly enough, for the past decade or so, most loans were conventional loans. Even at 100% financing, the loans were conventional loans. These requirements were much less restrictive.

As most loans were conventional loans, most associations decided not to spend the time and money to become FHA approved. This made good sense at the time. Today however, most loans are FHA loans where you only have to put 3.5% as a down payment.

So today, in 2011, the largest buying audience (an estimated 70% though it varies by location and price point) are buying homes with an FHA loan and most condo properties are not yet FHA approved (a costly and timely process). This can be detrimental to values if you have shrunk your buying audience down to roughly 30% of the buying population.

Next step is to consider the percentage of rented properties to owner occupied properties within the entire complex. To qualify as an FHA complex, the total number of units that can be occupied by a tenant needs to be 10% or less.

A banker looking to give a homebuyer an FHA loan will first send out a Condo Questionnaire to get filled out by the Condo Association. Within this questionnaire, they will get this ratio of tenants to owners verified to insure it meets its 90/10 rule.

Buying a property that is not an FHA approved property is not necessarily a bad thing, it should, however, be identified and understood as not being FHA approved can affect the exit strategy as it affects the size of the buying audience.

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