FHA Financing - First Steps!

Federal Housing Administration (FHA) loans are the next big thing in real estate financing. The reason? These are the only low downpayment loans that have survived the turmoil of the lending world. First time buyers are particularly fond of these since they require only 3.5% downpayment. For that, you pay a slight premium usually in the form of a slightly higher interest rate, but for some buyers this type of loan is the only option.

The issue we run into with FHA loans is that the property has to actually qualify for the loan. This gets troublesome at times, especially in the condo world.

If you're going to be getting an FHA loan and you're interested in buying a condo, you have two options:

• Only look at condo buildings that are fully FHA approved
• Only look at condos that might qualify for FHA spot approval

The building management company can usually tell you if the building is FHA approved, or you can search online for approved buildings at https://entp.hud.gov/idapp/html/condlook.cfm.

If the building is not FHA approved, there are a number of criteria the condo itself must meet in order to get a spot approval on the individual unit. Without going through the entire spot approval process, you should start by finding out:

1) Does the condo association hold the Right of First Refusal? If they do, this condo will not be able to get an FHA spot approval. Skip it. On the flip side, if you're trying to sell your condo in a building that has the first right of refusal, you might consider talking to the association to see if they can change this rule in the condo by-laws. This might open the market for you and draw a larger buyer pool to your condo. But do this right away - because changing the by-laws might require getting past some red tape and take a little time.

2) What percentage of the condos in the building are owner-occupied versus rented? The building must be at least 71% owner occupied in order to be considered for an FHA spot approval. So if you're interested in a building full of renters and you're getting an FHA loan, forget it. Move along to the next building.

If you'd like help finding FHA approved condos, I know many in the Chicagoland area and am happy to help. Contact me anytime!