Condo Associations Should Seek FHA Approval - Now

Recently I've had a few conversations with clients and Condo Associations about the prospect of getting themselves FHA Approved. It used to be a cumbersome process, with minimal reward, and Associations were content to let their prospective buyers seek "spot approval" if they were interested - taking the onus off the Association. Earlier this year, the Federal Housing Administration did away with spot approval, changed the rules of the game, and rescinded any pre-existing approvals, requiring Homeowners and Condominium Associations to getting themselves re-approved.

According to Baird & Warner Financial this morning, 32% of their new loans are FHA across the Chicagoland area, year to date. With about a third of all new buyers purchasing their homes with FHA financing, how can Condo Associations afford not to get FHA-Approved?

As recently as 2006, FHA loans accounted for only 1.7% of new mortgages. If you haven't been following the lending market closely, and who outside of my business does, you'd assume that there might be an uptick, but not of these proportions.

Home pricing is all about (capital S, capital D) Supply and Demand, and you don't have to read too many newspapers or listen to too many news broadcasts to understand that Demand is weak these days. With plenty of Supply, and limited Demand, these bodies simply cannot afford to cut off a third of potential home buyers, or they risk really damaging their market value through declining sales prices.

I recently read a great article on RISMedia.com that had this to say:

Management companies and homeowners associations constantly ask why their condominium developments should seek FHA approval. A recent survey of more than 12,000 home buyers conducted by the Home Buying Institute indicated that the vast majority of respondents (87%) planned to use an FHA loan for their purchase. Given the prevalence of FHA loans in today’s housing market, the simple answer is that unit sellers in an association without FHA approval are severely limiting the pool of potential buyers. Thanks to the law of supply and demand, fewer possible buyers mean units will often sit on the market for longer periods and sell for lower prices. Even non-sellers are affected as lower sales prices for neighboring units often result in lower appraised values for all units.

And the RISMedia Article concludes by saying:

Despite FHA’s easier down payment and credit qualifying guidelines, associations should not fear that FHA loans are risky and real estate agents should feel comfortable suggesting them as an option to their clients. “Full documentation” requirements ensure borrowers are fully vetted for their ability to afford the property in question. With the required income and asset reporting demanded by FHA, foreclosure rates have been historically lower than for those with any other type of loan—a fact that should give homeowners associations peace of mind.

Associations and management companies should further investigate and consider all of the benefits that FHA loans provide. Real estate agents should be prepared to help their clients navigate the process, as it will only help increase sales in a tricky market.

Condo Associations should not fear FHA Approval and FHA buyers, in fact they should embrace them. The FHA Loan product will assist thousands of buyers to purchase homes where they would not have otherwise tried, and buoy the market in these tough times.