If you are a current condo owner, or looking to purchase a condo in the near future, this information could save you thousands of dollars in lost equity and months of heartache. There have been some recent changes HUD (Department of Urban Housing and Development) that could have a dramatic adverse effect on the current already struggling condo markets nationwide.

In the past, you only needed to satisfy one of the following two criteria’s to finance a condo unit using FHA financing.

1.) The Condo Project has a FHA warranty

- This requires the Homeowners Association of the condominium project to apply and receive a warranty on the project from the HUD.

2.) The unit must pass a questionnaire called a “Spot Check” done on an individual basis

HUD just released an announcement that they will be changing the guidelines which includes the removal of “Spot Check” approvals which means you will only be able to get a FHA loan on a condo if the project has a warranty. (Mortgage Letter 2009-19).

FHA loans now represent more than 25% of all home purchases. If you are selling a condo in a complex that does not have a FHA warranty, you are eliminating 25% of the buyers currently in the market looking for a home. As our current real estate market has shown that when it is difficult to obtain financing on a home, values drop.

WHAT WIIL THIS MEANS TO CONDO BUYERS?

Whether you’re looking to buy using FHA financing or not, this should still affect your buying decision. It would not be a prudent decision to purchase a property that will be more difficult sell down the road. If you find a condo that does not have a FHA warranty and you really want to buy it, know that October 1^st is the date the new guidelines going to take affect. Many lenders will adopt this policy prior to this date, so be sure to check with your lender. If you do buy using the “Spot Check” approval now, I would recommend that you actively speak to the homeowners association about making the property FHA warrantable immediately after you close on your purchase.

HOW DO THESE CHANGES AFFECT CURRENT CONDO OWNER?

I recommend immediately checking to see if your condo has a FHA warranty. If it has a FHA warranty, you’re in good shape! If it is not a FHA warrantable complex, speak to the Homeowners Association immediately about getting the complex FHA warrantable. The key is to get your complex a FHA warranty PRIOR to the October 1^st date. Keep in mind that the turn times to get a warranty will be based highly on the amount of submissions HUD receives. It is most likely that everybody will begin the process after they realize how important this is. Try to be ahead of the curve.

ARE THER MORE CHANGES TO BE EXPECTED?

Even though this change could potentially be extremely damaging to condo values, there are some positive changes on the 2009-19 HUD letter.

1.) Direct Endorsement Lenders can now approve a project

a. This means that a FHA lender can actually do the warranty process for HUD. This is great if your lender is a DE (Direct Endorsement) lender; they can approve the entire project then provide you the financing to close

2.) Site Condominiums will not require a Condominium Project approval

a. Site Condos are single family detached dwellings. These will be looked at identically to that of a standard Single Family Residence to the FHA lender.

3.) Refinancing a condo that’s not warrantable that already has a FHA loan does not require a warranty when refinanced to another FHA lender

4.) No Project Approval is needed for buying a HUD foreclosure condo