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See Spot Run – FHA
Spot Approvals Vanished on February 1, 2010.
February 1, 2010
By Gregory A. Braun, Partner
McCormick Braun Friman, LLC
As of February 1, 2010, the FHA eliminated Spot Approvals for FHA transactions. Spot Approvals enabled lenders to underwrite one unit in a condominium building and allow that unit alone to be eligible for FHA approval, even if the entire building did not have that important designation. Now, not only must the buyer qualify for FHA financing, but the entire condominium building must be eligible as well. For that reason, if the buyer is otherwise well qualified, but the condominium association does not meet traditional Fannie Mae/Freddie Mac (or “conventional”) requirements, FHA may be the only solution. Historically, homebuyers rarely needed FHA loans. Today, however, it seems that FHA comprises more than half of new home financing. There are many reasons for this change, some of which will be explored in this article. To demystify some of the main questions, I have asked Chappie Sartino of Wells Fargo to explain the new changes and what it means to be FHA Approved.
Chappie, why is FHA eligibility is so important?
Historically, FHA had been considered an unfavorable method of home financing because of its complications and costs. Since the retraction of Conventional Condominium Financing, FHA financing has become a necessity. FHA guarantees the loans banks make to their customers, making the FHA rates among the lowest available. You see, in today’s market, there are more first time buyers and they often are just establishing credit and have not had time to accumulate large down payments. Even move up buyers have had credit issues with the dip in the economy and shrinking home equity. FHA provides excellent rates with higher loan-to-value ratios, a 3.5% down payment requirement, less stringent credit requirements, lower monthly mortgage insurance and protection for the consumer through stringent screening of condominium associations.
What are the criteria for a building to be
eligible for FHA loans?
FHA requires that the building have no more than 10% of the units owned by a single entity, no more than 15% of the units 30 days or more delinquent on their home owner association (“HOA”) dues, projects with 20 or more units must have fidelity insurance of three months HOA dues and reserves, a strong budget with 10% replacement reserves and funding for all insurance and deductibles, 51% of the units must be owner-occupied and no more than 25% of the building can be commercial space, as well as some other factors.
What are the process and the timing?
Several documents must be sent for review, including the condominium declaration and bylaws, condominium survey, the association’s budget, a questionnaire and owner occupancy certification, among other things. The package can be submitted directly to Housing and Urban Development (“HUD”) for Review and Approval Process (“HRAP”), which process takes six to eight weeks or longer. Alternatively, a Direct Endorsement Lender Review and Approval Process (“DELRAP”) can be achieved through Wells Fargo in a couple of weeks. DELRAP underwriters have expertise in reviewing and approving condominium projects and making sure the projects meet FHA standards so FHA accepts them without conditions. Wells Fargo works with knowledgeable condominium attorneys, like those at McCormick Braun Friman, LLC, to resolve issues, making sure that the condominium meets FHA requirements and that the documents conform to FHA standards before the application is submitted.
Gregory A. Braun is an attorney at McCormick Braun Friman, LLC.
Chappie Sartino has 17 years of mortgage banking experience providing financing solutions for people looking to purchase or refinance single family homes, condominiums, town homes and two to four flats. His expertise includes all types of borrowers from first time homebuyers, to move up/down buyers that need more/less space, all the way to those seasoned borrowers buying yet another million dollar + property. Chappie is able to lend in all 50 states, accommodating clients purchasing or refinancing second homes and investment properties as well as those relocating to another state. He often assists borrowers with understanding their credit obstacles and borrowing options. If they are not able to purchase immediately, he can help them get on track to do so in six to twelve months in many cases. Wells Fargo offers many programs and services in this regard.
Please visit
www.chappiesartino.com to
learn more or contact Chappie directly at
chappie.sartino@wellsfargo.com or
312-274-4140.
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