If your community is a condominium project, you may know that there is a certification requirement for condominiums to be eligible for FHA and VA loans. Some associations avoid getting approved because of the misconceptions about these loans. This blog post will discuss the truth about these misconceptions, and why you should consider getting your community approved.
- “FHA and VA loans are loans from the government.”
Homeowners who finance the purchase of their home through what are known as “FHA loans” or “VA loans” are not borrowing money from the government. Rather, the Federal Housing Administration (FHA) or Veterans Administration (VA) provides mortgage insurance on qualifying mortgages from private lenders.
- “FHA and VA loans are for low-income borrowers.”
FHA and VA loans do help homebuyers who can’t afford a large down payment. Down payments can be as low as 3.5% for FHA loans, and zero for VA loans. But that doesn’t mean these owners don’t pay their bills (or won’t pay their assessments).
In fact, the average credit score for all FHA insured loans in 2015 was 6801. Homeowners with FHA loans who fall behind on their payments are much more likely to get back on track than fall into default2. And, homeowners with VA loans default less often than those with FHA loans.
- “A buyer can get an FHA or VA loan for a unit, even if the condominium project is not approved.”
This used to be true, and it was called “spot loan approval.” In 2009, the Department of Housing and Urban Development (HUD) did away with spot loan approvals4. The VA also won’t guarantee a loan for a unit in a project that is not on its approved list5.
- “It’s not worth it to become FHA or VA certified because it only benefits a few owners, not the whole community.”
Getting approved will take some time and effort, but once your community is approved for VA loans, you never have to renew. (FHA approvals last two years.) But, it doesn’t just benefit the owners who used an FHA or VA loan to purchase their unit. Here are four ways approval can benefit your whole community:
- Increase the potential buyer pool.
In 2015, nearly 22% of home purchase loans were FHA insured5, and in 2014 VA loans were 9% of the market share7. That’s a large percentage of the potential buyer pool you won’t want to leave out.
- Keep market values high.
If your project is approved, sellers won’t have to settle for a lower purchase price for their unit because a higher offer came from an FHA approved buyer8. Higher purchase prices means higher market value.
- More owner-occupied units, fewer investor-owned rentals.
Just to qualify for FHA certification, at least 50% of units in a project must remain owner-occupied9. And, with few exceptions, FHA loans are limited to owner-occupied, principal residences10.
- Owners in your community can qualify for a HUD reverse mortgage.
Even if an owner didn’t buy their unit with an FHA insured loan, they can apply for an FHA reverse mortgageâbut only if the condominium project is on the approved list11.