FHA Spot Approval Ends October 1, 2009

12 09 2009

If you or your customers are thinking about buying a condo, first you should make sure that the condo project is on HUD’s approved condominium list. In the past, FHA financing has required that either a blanket approval be obtained for the project or that the lender apply for a “spot approval” (approval for the single unit being purchased.) FHA can do a spot approval for an individual condo unit in a complex that is not already FHA approved.

FHA spot approval requirements for condominiums must be satisfied before a spot loan is endorsed.

HUD is proposing to streamline the FHA approval process for condominium projects but, at the same time, is eliminating the spot approval effective October 1, 2009. In the real world, this will happen before the deadline because lenders need to get their loan packages to FHA before October 1, 2009.

Under this new process, FHA lenders will be able to approve a Condominium project for HUD. This means that “spot approvals” will no longer be required. In fact, once a loan is done on a unit in a development, it will be added to the approved list and future loans in the project will be easier push through. Over time, this should really streamline the time it takes to do FHA loans for any condo projects.

If you are currently in escrow for a condo purchase pending FHA spot approval, my advice to you is get moving fast before the October 1st dateline. Many lenders are expected to play it safe and adopt the new policy in advance.

P.S. The FHA Mortgagee Letter 2009-19 released on June 12, 2009 raised concerns. Among them is a 30% limit on the number of units in new FHA-approved condo projects that can be financed using FHA-insured mortgage loans. A similar requirement has been in place for years for units in non-approved buildings, but applying the 30% limit to FHA-approved projects would have an extremely negative impact on the condominium market.

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