| While this may not have
been important four years ago, when only five percent of
mortgages were FHA insured, it is estimated that FHA eligibility
will now affect as much as 60 to 70 percent of all condominium
refinances and sales.
If fewer than 50 percent of the project
units are insured by FHA, the requirements are somewhat
However, it is estimated that most projects will eventually exceed that
proportion, in which case the new regulations become important. If you
do not already have in place a package showing compliance with FHA
eligibility, you need to begin the process now, not later after the
calls start coming in from irate homeowners, Realtors and board members.
This flier is only intended to highlight the current state of the
regulations which, unfortunately, are changing daily in response to
feedback received by the FHA.
1. A “mixed use” project in which more than 20 percent of the space is commercial is disqualified from FHA
2. Units may not be rentable for periods of 30 days or less. If that provision does not already appear in the governing documents, consider whether a rule can cover the situation.
3. At least one-half of the project must be owner-occupied and no single person owns more than 10 percent of the units in the project, and in projects consisting of 10 or fewer units, no single person owns more than one unit. Note: bank-owned units (sometimes referred to as “REO properties”) are considered owner-occupied for this test.
4. Not more than 15 percent of the owners are more than 30 days delinquent in their homeowner dues (assessments.)
5. The budget must show that the anticipated income is adequate to meet the maintenance and preservation obligations of the Association, and 10 percent of the budget goes to capital expenditures and deferred maintenance.
6. Hazard insurance in the form of a master or blanket policy provides coverage equal to 100 percent of the project replacement costs exclusive of land, foundation, excavation and other items normally excluded from coverage. Alternative: The homeowner applying for an FHA-backed mortgage may provide “gap” coverage.
7. If the project or portions of it are in a flood zone, proof of flood insurance in coverage amounts specified by the FHA is required.
8. Your association may already be qualified without you knowing it! The larger lenders are eligible to certify an entire Association under the Direct Endorsement Lender Review and Approval Process
(DELRAP). Alternatively, the Association may apply directly to HUD (www.hud.gov). Decisions take approximately four to six weeks. Information is also available at