The Federal Housing Administration, or FHA, is a mortgage loan insurance provider. FHA is housed with The Department of Housing and Urban Development, or HUD. It has a set of guidelines for housing loans and if a borrower meets these guidelines, FHA will insure the loan to protect the lender against losses. FHA is not a loan provider and does not lend money for home purchases.
FHA has different criteria by which it qualifies borrowers than the so-called “conventional” loan programs of Fannie Mae and Freddie Mac. FHA allows for lower down payments and has slightly more lenient credit-qualifying criteria than conventional loan programs.
The FHA program was designed to fill this niche and was intended to have a market share of around 10-15 percent. During the housing downturn that began in 2007, FHA’s market share jumped to more than 40 percent. This was cause for concern and HUD began searching for areas where it could mitigate risk. One of the primary targets was condominiums.
In November 2009, HUD released Mortgagee Letter 09-46b which made three fundamental changes to the guidelines for condominium loan approvals.
The question for Associations now becomes: “ Should we be on the Approved Condos List?” As a condominium project consultant who assists associations to get on the list, my answer should be “absolutely!” But the honest answer is that it depends on the condominium location, make-up and market value of the units.
Some condominiums simply do not meet FHA’s guidelines, such as condo-hotels and those in coastal barrier zones. Others have sales prices that greatly exceed FHA’s maximum loan amounts.