If you own a condo unit or are considering buying one, you might want to consider getting the condominium complex federally approved. While this is certainly not necessary for a complex, it can be beneficial because it opens up the potential number of buyers; the more buyers you have the more likely you are to sell the condo when the time comes. In addition, because you’ll be dealing with more buyers you will have more competition, which means you may just get a better deal when selling. That being said, before you begin the approval process you’ll want to familiarize yourself with the requirements necessary for FHA approved condos.
A Simple Breakdown of the Guidelines
When you become approved by the Federal Housing Administration they are agreeing to take you on as a potential risk if you end up with a unit in the complex that gets defaulted on. Because of this you are required to meet a certain level of standards in order to maintain the integrity of the building if the condo ends up in foreclosure. Once a foreclosure is complete, the unit becomes the property of the federal program and will have to be resold. So the first requirement for an FHA approved condo is to have the complex adequately insured. This includes both hazard and liability insurance. In addition, if you live in a flood zone you will be required to insure against that as well.
Ownership and use of the property space are also very important during the approval process. Because the Federal Housing Administration is designed to promote individual ownership rather than renting or investments, one investor cannot own more than 10% of the units, unless the complex only consists of three units. If that is the case then one investor is only allowed to own one unit. This keeps the condo as a personal use, ownership purchase rather than an investment purchase. Many times when building a condominium complex the builders want to supply federally approved condos to their buyers. They will often get approval beforehand. This approval can’t happen, however, until at least half of all the units have been sold to buyers. Again, the federally backed loans are designed to promote homeownership and make it possible for people to get into a home when they may not be able to otherwise. Having those units sold prior to approval is a way of ensuring the integrity of the project.
Another requirement for FHA approved condos is that the entire complex has to meet approval, not just a single unit. This makes it easier to maintain the complex as all units will be subjected to the same rules and will all be required to meet a certain standard. So if you want your unit to become part of the federal housing program, you will need to work out the details with all parties involved until everybody has agreed to the approval.
Know what the FHA underwriting guidlines when purchasing an FHA approved condos.
How the Homeowner Benefits from FHA Approved Condos
You may be wondering why you would go through the trouble of getting approval when you will be required to follow the federal guidelines. The simple answer is that as a homeowner you can benefit from this approval in multiple ways. The first way was already mentioned – you will have an increased pool of buyers which means you may get a higher price for your unit. Another benefit is that if you have an FHA loan on your unit, another buyer can assume your loan if you choose to let them. When a loan is assumed the interest rate stays at the rate that it originally was, so if you have a loan with a low interest rate and you’re willing to let another buyer assume that loan, they will take on that same rate as well. A few other benefits include the respectability of the community; the federal administration discourages renting and encourages ownership so the additional units will more than likely be owned by those living in them. You also open up yourself to more real estate agents when you’re looking to sell. It’s not uncommon for a real estate agent to refuse to show a condo that hasn’t been approved so being on that approval list only increases your chances for more buyers.
While it isn’t necessary to have your condo approved, it does have plenty of benefits with very few drawbacks and in the end there is a very good chance it will be worth it to go through the approval process. However, before making any decision, it’s always a good idea to get the opinion of a few professionals who may be able to help you out.