Billings Condos and the FHA Loan

Planning on buying a condo with that spiffy new FHA loan preapproval

BEWARE.

As of this writing, there are only seven condo communities in Billings that have been approved by the FHA

And, FHA won’t lend money on any community not on the approval list.

If you’ve been disappointed by falling in love with a condo only to find out later that it’s not approved by the FHA, do yourself a favor: Fire your real estate agent for not researching before showing you the condo.

If you’re not working with a real estate agent, you have only yourself to blame.

Have no fear, though – Realty Billings is about to bring you up to speed on everything you need to know about buying a condo in Billings when using an FHA-backed loan.

FHA requirements for condo purchases

Your lender not only needs to determine your credit worthiness, but also assess the risk of lending money on a home governed by a homeowners association. And, believe me, they have every right to be concerned about the latter.

Sure, most HOAs are run by ethical folks, but there’s always the exception, right? Then, there are the communities who fail approval for reasons other than the ethics of the HOA – reasons beyond the board’s control.

Here’s a basic list of why the FHA may consider an association too much of a credit risk:

• FHA wants to see that no more than 50 percent of the units are rentals.
• FHA stipulates that no more than 15 percent of the homeowners are delinquent on paying their association fees.
• No homeowner can own more than 10 percent of the total units in the community. So, if Warren Buffet decides to buy 15 percent of the homes in the community, FHA won’t certify it.
• The association must not be involved in current litigation.
• The association must be able to show at least one year’s worth of cash reserves.

Again, these are the basics and the most common reasons a community fails the certification process.

Yes, they’re stringent – enough so that 60 percent of communities across the country are turned down and only about 10 percent, nationwide, have FHA approval, according to John McDermott at National Mortgage News.

But, there are advantages of the FHA condo approval process

There’s nothing like having the U.S. government perform your due diligence for you. By inspecting the HOA documents for items of concern, they remove a huge burden from the buyer.

That said, you should still run this paperwork by your attorney – there are other issues other than FHA concerns that a buyer should look for.

FHA-approved condos are far easier to sell. Since condos are typically less expensive than single-family homes, they’re popular with FHA buyers. The approval expands your buyer pool immensely.

How to find that dream condo in Billings

Viewing condos that aren’t approved only sets you up for disappointment. So, go online, to HUD’s website, to find out whether or not the Billings condo community you are interested in is approved.

Fill out the state and city boxes and then, in the “Status” box, click “Approved” in the dropdown menu.

Learn more about FHA loans in general, here.