The U.S. Department of Housing and Urban Development has announced that most of the new guidelines for Federal Housing Administration (FHA) loans related to condominiums will not be implemented until December 7. The "spot loan" approval process is now scheduled to be eliminated on February 1, 2010. All currently approved condominium projects will be transferred to the new FHA approved list. Projects that were approved before October 1, 2008 will require re-certification by December 7, 2010. Projects that were approved between October 1, 2008 and December 7, 2009 will require re-certification within two years of their approval date.
The new standards governing FHA condominium loans that were first announced in June have also been revised. One significant change is that condominiums are not required to maintain a current reserve study. A "budget review" process has been inserted instead. This review must determine that the budget is adequate and meets the following standards: 1) Includes allocations to ensure sufficient funds are available to maintain amenities and unique features; 2) Provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and 3) Provides adequate funding for insurance coverage and deductibles. If a condominium's budget does not meet these standards, a lender may request to review a reserve study that is less than a year old to assess the project's financial stability.
Another important revision to the new FHA standards concerns the kinds of insurance coverage that must be in place to obtain approval. Condominium associations are required to maintain property insurance in an amount equal to 100% of current replacement cost of the condominium and comprehensive general liability insurance covering common elements, commercial space, and public ways. Associations with 20 or more units must also maintain fidelity insurance with coverage in an amount no less than the sum of three months assessments on all units plus reserve funds. If the project is located on a 100-year flood plain, a certain type of flood insurance is required as well.
If the board of your condominium association is concerned about obtaining or maintaining FHA approval, then it should consider seeking guidance from an attorney or other real estate professional that is familiar with this complex area.
The new standards governing FHA condominium loans that were first announced in June have also been revised. One significant change is that condominiums are not required to maintain a current reserve study. A "budget review" process has been inserted instead. This review must determine that the budget is adequate and meets the following standards: 1) Includes allocations to ensure sufficient funds are available to maintain amenities and unique features; 2) Provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and 3) Provides adequate funding for insurance coverage and deductibles. If a condominium's budget does not meet these standards, a lender may request to review a reserve study that is less than a year old to assess the project's financial stability.
Another important revision to the new FHA standards concerns the kinds of insurance coverage that must be in place to obtain approval. Condominium associations are required to maintain property insurance in an amount equal to 100% of current replacement cost of the condominium and comprehensive general liability insurance covering common elements, commercial space, and public ways. Associations with 20 or more units must also maintain fidelity insurance with coverage in an amount no less than the sum of three months assessments on all units plus reserve funds. If the project is located on a 100-year flood plain, a certain type of flood insurance is required as well.
If the board of your condominium association is concerned about obtaining or maintaining FHA approval, then it should consider seeking guidance from an attorney or other real estate professional that is familiar with this complex area.
