FHA Loans versus Conventional Loans

Some have referred to it as the ‘condo conundrum’. Boulder condos are big business, and if you’re buying a Boulder condo, you should think about this: as lending rules have remained tight over the last few years, one of the tough spots is centered around the choice between getting approved for an FHA (Federal Housing Authority) loan, with its fairly low down payment requirement, and a conventional loan.

The largest problem with the FHA loan scenario comes when a buyer is considering the purchase of a condo. The FHA / HUD approval requirements have always been there, but they appear to be more strict, and compliance isn’t what it used to be.

Call, text, or email me today! … I’d seriously enjoy having the opportunity to talk to you about your plans if you’re moving, or if you know someone who is considering a move, and needs some straight answers.

If you want to research some on your own to determine if the condo project you’re considering is FHA approved, visit the HUD Condo website.

The biggest issue in Boulder is that much of the condo market, in any given condo development will have a large number of units owned by investors. What this means is that the residents are likely tenants, not owner-occupants.

If the ratio of tenants to owner-occupants is too high, the project may not be FHA approved. In June 2009, the FHA, which guarantees loans (that is, the loans aren’t owned by the government entity, but they are ‘backed’ or more precisely insured/guaranteed by the FHA) changed the rules.

The deadlines to get a condo project approved by the FHA, or to ‘make the list’ was originally 12/7/2010, then it was extended to 12/31/10 or as late as 3/31/11 in some cases, depending upon when the project was built.

Some projects which had FHA approval saw that approval expire at the end of 2010. One rule, which has been in place for a while is the 50% rule. FHA requires 51% owner-occupants. The 10% issue: a maximum of 10% of the units can be owned by one single investor. The association must have hazard, liability, and when required… flood insurance.

Other loans are still coming with tight underwriting guidelines. Most conventional lenders want pretty high credit scores, generally 20% down, and if you put down less, you’ll likely have to pay PMI (private mortgage insurance).

Actually, it’s not as bad as it may sound, or as tough as the media makes it out to be. I’ve seen one of the busiest years ever in 2010, with many successful sales, and plenty of loans closing, especially with locally owned banks who underwrite their own loans like 1st Bank.

Thinking about buying a new home, getting ready to sell, or know someone who plans to move? I think we should talk.

Call, Text, or Email me. I will listen carefully to you.

You may also find my neighborhood profiles, and Boulder business profiles informative and useful. They’re both great ways to learn more about what’s going on in Boulder. Call, Text, or Email me today!

Zachary Epps, GRI, ABR, REALTOR®, full-time RE/MAX professional, and author of the Boulder Real Estate and Neighborhood Guide, The Boulder Condo Guide, and The Home Buyer’s Handbook.


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