New FHA Requirements for Condo Associations

The Federal Housing Administration (FHA) will no longer approve condo mortgages unless their condo associations are certified.

Here are the requirements for FHA certification:

1. All units and common elements need to be completely built.

2. No single entity can own more than 10% of the units, or more than one unit (whichever is greater).

3. At least 50% of the units must be owner occupied.

4. No more than 15% of units can be behind on their assessments.

5. No more than 25% of the total floor space can be used commercially.

6. At least 10% of the condo association budget must go into reserves.

7. It's ok for associations to have a right of first refusal, as long as they don't use it for discrimination.

8. Associations must submit copies of their budget, insurance policy, declarations / bylaws, plat of survey, any management agreements, analysis of any litigation, and minutes from the last 2 board meetings.

There are two ways for a condo association can become FHA certified. One way is to wait for an FHA buyer to attempt a purchase, and then let the buyer's lender to the work.

The second way is for associations to apply directly to the U.S. Department of Housing and Urban Development (HUD). Associations who do this frequently hire lawyers and/or consultants.

Why might a condo association go through all this trouble? Well, in the last few years, FHA-insured mortgages have gone from 2% of all mortgages in 2007 to 30% in 2009. This means that condo owners without an FHA certified association will lose access to a large, and growing, pool of buyers.