Updated Condo Approval Process for Reverse Mortgages

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A new Mortgage Letter 2009-19, Condominium Approval Process has been issued by the Federal Housing Authority, FHA.  This letter outlines new guidelines and requirements for reverse mortgage lenders and mortgagees who own or want to purchase a condominium.  The reverse mortgage lenders will receive information regarding mortgage insurance on condominium units which are located in a condominium project (project).  The FHA streamlining process now allows reverse mortgage lenders to determine project eligibility, review project documentations, and certify to compliance.  Homeowners who currently reside a condominium or buyers seeking to purchase a condominium may be eligible for the new Condominium Approval Process which ensures mortgages on individual condominium units. 

Eligible projects include projects which have been created and exist in full compliance that are applicable with State law requirements of the jurisdiction and with all the other applicable laws and regulations.  On the other hand, ineligible projects are condominiums which do not meet the requirements of the new Condominium Approval Process and are the following structures:
• Condominium hotels which are also known as “Condotels”
• Timeshares or any form of segmented ownership properties
• Houseboats
• Multi-dwelling unit condominiums
• And all projects that are not deemed to be used primarily as residential

The general requirements of the Condominium Approval Process are that site condominiums, which are single family detached dwellings that are declared to be such by a condominium covenant or a condominium form of ownership.  Under the new process the requirements of site condominiums are effective immediately.  FHA-to-FHA transactions do not require project approval if the FHA-to-FHA streamline refinance transactions or if the project belongs to a FHA/HUD Real Estate Owned (REO) Division sales. 

There are new requirements under the Condominium Approval Process which will be outlined in the list below:
• Projects consist of two units or more.
• Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.
• Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.
• No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes.  The project must be of residential use and is free from adverse conditions to the occupants of the individual units.
• No more than 10 percent of the units may be owned by one investor.  No one person may be able to own more than one unit in a project and project must be 100 percent complete and have only one unit conveyed to non-owner occupants (rent tenants). 
• No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment. 
• At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit.  The lender must be willing to make the loan in which an executed sales agreement is valid.
• At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units.  For projects which are under construction, FHA will allow a minimum owner occupant amount equal to 50 percent of the number of presold units. 
• Legal Phasing is permitted for condominium processing. 
• FHA Concentration, with a project of three or less units with no more than one unit with FHA insurance; and with a project of four or more units with no more than 30 percent of the total units with FHA insurance. 
• Reserve Study which is a current reserve study that must be performed to assure adequate funds are available for the funding of capital expenditures and maintenance.

For individuals owning or interested in a manufactured housing condominium projects these projects are now eligible for FHA mortgage insurance.  At no time will FHA accept a temporary Certificate of Occupancy and all the units within the building where the borrower’s financed unit is located must be complete.  All Condominium Project approvals will expire two years from the date it was placed on the list of approved condominiums.  Condominium living has become easier for individuals with the new Condominium Approval Process.   

Robert Griffin specializes in reverse mortgages and has earned the accolade of No. 1 reverse mortgage broker in the Southwest for three years in a row. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). If you would like an information packet or would like to set up an appointment with one of our reverse mortgage specialists, call (866) 683-3690 or complete our online Reverse Mortgage Information.