Bradley & Riley PC

Historically low interest rates have prompted a flurry of real estate transactions, including the purchase and refinance of condominium units. However, if your condominium unit is located in a condominium regime that has not been approved by the Department of Housing and Urban Development (HUD), you may not be able to take advantage of a Federal Housing Administration (FHA) loan. FHA loans (which are not really loans) are loans from lenders insured by the Federal Housing Administration. By insuring loans made to homeowners, the FHA mitigates a lender's risk in the event the borrower defaults, thereby increasing the likelihood of a borrower obtaining financing and reducing the costs of that financing.

In order to qualify for a FHA loan for the purchase or refinance of a condominium unit, the condominium regime in which the unit is located must meet certain requirements to ensure the regime is financially stable and managed properly. "FHA Certification" is the approval process utilized by HUD. By obtaining, re-certifying, and maintaining FHA Certification, a condominium association ensures that the owners and any prospective buyer of its units may take advantage of FHA financing.

• In general, the guidelines for FHA Certification are as follows: • No more than 50% of property can be used as commercial space • All phases of the project must be 100% complete • No more than 15% of units can be in arrears more than 60 days • At least 50% of total units must be sold prior to approval • 50% of the project must be owner occupied • No more than 50% of the units may be financed with FHA Loans • Sufficient Budget required – at least 10% of budget must go toward reserve funding • Insurance Coverage: Must have proof of adequate insurance coverage, including property and general liability

FHA Certification expires two years from the date of placement on the list of approved condominiums and further participation in the program requires re-certification to determine that the project is still in compliance with HUD's project eligibility requirements.

Categories: Real Estate Law

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