Clients often ask us about Fair Housing Administration (FHA) backed loans: What are they? Who can get them? And what do they mean for an association? There are many misconceptions about what exactly an FHA backed loan entails. The most common misunderstanding is that an FHA backed loan is a loan from the government-it is not. Rather, the term “FHA loan” refers to an ordinary loan from a private lender that is guaranteed by the federal government.
The FHA was created to encourage lending segments of the American middle-class who otherwise would not be able to obtain mortgages under conventional guidelines. FHA backed loans are not a mortgage subsidy or a scheme where the federal government pays all or part of an owners mortgage. Instead, the federal government agrees to insure certain private loan providers.
In order to reap the benefits of an FHA backed loan, community associations, particularly condominium associations, must meet certain criteria. In order to streamline the process; community associations apply for approval to the Fair Housing Administration to be “FHA certified.” This means that purchasers of units or lots with in the association are able to secure an FHA backed loan.
The certification process can be complicated, but not necessarily so. There are a number of requirements that condominium associations must comply with in order to be FHA certified. The two requirements that often pose the greatest obstacle for condominium associations are the requirement that no more than 15% of units can be delinquent for more than 60 days; and at least 10% of the association’s budget must be deposited annually into the reserve account.
There are other requirements that pertain to insurance, rentals, and commercial use of condominiums, among other subjects. While becoming FHA compliant can seem like an arduous task, associations that are having issues with high rental rates and low owner-occupancy rates should consider becoming FHA compliant in order to attract more owner-occupiers. If you believe that your association might be a good candidate for FHA certification, or you have questions about the process, please call our office. We can review your governing document, assess your collections situation and give you honest feedback about whether or not your association is in a good position to become FHA certified. If your association does decide to apply for FHA compliance, our office can take care of the process from start to finish.