It’s no secret that the housing market is booming again. As prices continue to rise, more and more people turn to the FHA loan program to buy a home.
But what is an FHA approval? Do HOAs really need one?
FHA loans are a popular choice for many first-time homebuyers. They offer more flexible qualification requirements than other types of mortgages.
However, the Federal Housing Authority must approve the property to obtain an FHA loan.
In this blog post, we will answer these questions and provide you with all the information you need to know about FHA approvals and HOAs!
Understanding FHA Loans
The Federal Housing Administration created the FHA loan program in 1934 to help make homeownership more accessible and attainable for all Americans.
The FHA loan is a government-insured loan program available to first-time homebuyers as well as repeat buyers.
The loan is available through private lenders and insured by the Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development (HUD).
Unlike conventional loans, prospective homeowners with low credit scores can purchase a home with as little as a 3.5% down payment.
For a property to be eligible for an FHA loan, it must pass an inspection by a HUD-approved appraiser, including:
- An adequate water supply
- NO health or safety hazards
- Adequate sanitation facilities
- A roof that is in good condition
- No severe defects or repairs needed
If the property meets all of these requirements, it will be eligible for an FHA loan.
Do HOAs Need to Be FHA Approved?
There are some circumstances in which an HOA may need to be FHA approved for the buyer to obtain the loan.
For instance, if the HOA is NOT currently FHA approved and the buyer wants to purchase a condo unit that is part of the HOA, the HOA must apply for FHA approval and be approved before the sale can go through.
The same is true if the HOA is not currently FHA approved and the buyer wants to purchase a home that is part of the HOA. They will need to wait for the HOA to be approved before they can close on the loan.
Checking the Status of FHA Loan Approvals
You can search for approved HOAs on the HUD website.
If you find that your HOA is not currently FHA approved, don’t worry! The approval process is not complicated, and most HOAs get approved within a few months.
To begin the process, the HOA must apply to HUD, and the application should include the following:
- A copy of the HOA’s bylaws
- A copy of the HOA’s budget
- A list of all properties that are part of the HOA
Once you submit the application, a HUD-approved appraiser will visit the property to ensure it meets all of the necessary requirements. Once approved, the HOA appears on the HUD website.
Advantages of An FHA-Approved HOA
With an FHA-approved HOA, there is a greater likelihood that security services provided by the association, such as 24-hour patrols and building locking systems, will improve the process.
Because the Federal Housing Authority has the ultimate authority to approve or deny a mortgage loan, there’s no way of knowing if the “security” provided is legitimate.
HOA Liability Protection
If the FHA disapproves of an HOA, it doesn’t have any government association backing its decision-making. This can potentially leave homeowners exposed to lawsuits or fines if the association makes a decision that disables or harms the property or its residents.
Better Insurance Coverage
FHA approval also makes it easier for insurance companies to provide better coverage for HOAs. For example, if the association doesn’t have FHA approval, it might be more difficult for insurance companies to cover items such as common area properties and amenities.
This can lead to higher premiums for all homeowners in the association.
FHA approval also makes properties easier to sell. This is because many buyers are looking for specific amenities when shopping for a new home, such as fitness centers, pools, or playgrounds.
FHA Condo HOA Requirements
The Federal Housing Administration (FHA) has specific requirements for condominium associations for buyers to obtain FHA financing.
These requirements are in addition to the regular approval process that all condominiums must go through to be eligible for FHA financing, including:
Low Delinquency Rate & High Reserves
The FHA stipulates that no more than 15% of HOA dues can be delinquent. Consequently, this leaves a tiny margin for error. If an HOA is even one day late on their bills, they may not meet the FHA’s requirements.
HOA board members actively involved in the association’s day-to-day operations, aka ‘participatory management,’ meet the FHA requirements.
Additionally, the homeowners association management must hold regular meetings (at least once per quarter) open to all community members.
No Litigation Pending
The FHA will not approve any condominium associations that have pending litigation. This includes lawsuits filed and any sort of mediation or arbitration that is underway.
If an HOA has even the slightest chance of ending up in court, the FHA will not approve them.
No Illegal Discrimination
The FHA has strict anti-discrimination rules that all condominium associations must follow.
This includes the Fair Housing Act (which prohibits discrimination based on race, religion, gender, etc.). It also includes the Americans with Disabilities Act (requiring all common areas to be accessible to people with disabilities).
The FHA requires that condominium associations have an excellent financial history. They also require an HOA to be in good standing with their mortgage lender(s).
Additionally, the association must have been operating for at least two years and have an approved budget.
Do your research and ask plenty of questions before making any decisions about buying a home with an HOA loan. Don’t hesitate to contact us today if you have further questions about FHA approval or HOAs. We would be happy to help!