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Buyers Regaining Confidence in Getting Approved

July 11, 2008 by  
Filed under Finance

It looks as though there’s going to be a new leader in loan products this year. Considering the difficulty for buyers to meet the higher standards in getting a conventional loan, FHA loans are making a comeback. FHA loans have lost their value in previous years due to the ease and convenience in getting qualified for other products. “If you have a pulse, you can get a loan,” was the old joke that used to be heard near the water cooler. Now, increased standards of privately held banks have dissolved that saying into a feeling of impossibility. But, impossible is now hardly the case.

The challenge buyers now face when looking to qualify for an FHA loan is mostly the additional effort needed when going through the application process. However, as opposed to the newly required 10% down needed on conventional loans, a few benefits of FHA includes the ability to do 0-3 percent down, no income limit, and lower standards on credit score.

Virginia Lawson, a mortgage adviser for Cobalt Mortgage told us that there are a couple of factors buyers should consider before determining whether or not FHA is a viable solution.

  1. The purchase must be a primary residence, and a borrower can only have one FHA loan at a time. However, there are some exceptions. For example, Lawson tells us that someone with a primary residence in California, who is being relocated for a job, can still qualify. “It has to make sense,” she says.
  2. If you are looking at a condo, the building must be FHA approved. While several buildings downtown have already been approved, there are many that have not. After getting approved, it’s important to ask your agent if the building has been approved, but you can feel good about buildings that have either been built prior to 2000, or are currently under construction. Lately, developers have been including FHA approval in the development process considering recent challenges within the lending industry . Because this is a recent trend, new buildings that have already been available for occupancy may need approval.

New Construction Properties:
3 Classifications

  1. Proposed – The home is in the process of being done.
  2. New Existing – done but less then 1 year old. You must provide the following:
    As far as new construction single family, which is defined by FHA as homes that are less than one year old, the following documentation is required:
    (a) Copy of the Building Permit
    (b) Copy of the Certificate of Occupancy
    (c) Copy of all the construction inspections completed by the local authority that has jurisdiction (city, county, etc)
    (d) Fully completed and signed Builder’s Warranty (Form HUD-92544)
    (e) Fully completed and signed Builder’s Certification of Plans, Specifications and Site (Form HUD-92541)
    (f) Statement signed by borrowers as follows: “We are aware that the property was not approved by HUD prior to the start of construction and the Department does not have authority to provide financial relief for any future property repairs under Section 518(a) of the National Housing Act”
  3. Existing

Check List for Spot Approval (Needed if building is not FHA approved):

*Subject to verification

  • The legal documents of the homeowners association do not contain a right of first refusal or restrictive covenant.
  • The unit is part of a condominium regime that provides for common and undivided ownership of common areas by the unit owners.
  • The project, including the common elements, and those of any Master Association, are complete, and the project is not subject to additional phasing or annexation.
  • (a) There are no special assessments pending.
    (b) No legal action is pending against condominium association, or its officers or directors.
  • The common areas have been under control of the homeowners association for at least one-year.
  • At least 90 percent of the total units have been sold.*
  • At least 51 percent of the total units in the project are owner-occupied.*
  • There are no adverse environmental factors affecting the project as a whole or individual unit.
  • No single entity owns more than 10 percent of the units in the project(s).*
  • The units in the project are owned in fee simple or the units are held under a leasehold acceptable to FHA.
  • The owners association has adequate common area insurance coverage. General liability, replacement coverage, etc.. Reflects the character, amenities and risks of the particular development.
  • Flood and other insurance carried, when applicable.
  • General maintenance level of common elements is acceptable and there is no deferred maintenance, based on the comments by the Appraiser and/or the pictures.
  • The owners association has a reserve plan and reserves fund, separate from operating account, which is adequate to prevent deferred maintenance. The amount of the fun is $____ as of _____.
  • (a) For projects consisting of over 30 units, no more than 10 percent of the total units are encumbered by FHA insured mortgages.*
    (b) For projects consisting of 30 units or less, no more than 20 percent of the total units are encumbered by FHA insured mortgages.*

Virginia Lawson has over 16 years experience in helping people learn about financing and what loan program works best for their needs. To see if you qualify for FHA, or would like to simply learn more about your options in obtaining a home loan, please contact Virginia at (425) 605-3129 or visit her website.

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