Condo Association Management Blog

You state that you cannort afford the 20% down paymentIf that is the case I suggest you look for another solution to yopur housing problem. You could download your state condominium act by putting the following into your browser 
 
 
 
(bname of State) condominium act.com. You should also read the bylaws of the condo association.

For purchasers expecting to utilize FHA financing for purchase of a condo, the HUD website has a database of approved condos which can be sorted even by zip code. FHA no longer accepts Spot Approvals for individual properties within a non-approved project. 
 
Standards for FHA and FHMA were updated in 2009. And many condos previously approved are up for renewal no later than Dec 7, 2010. Often the condo board is unaware of this. It has been the practice in the condo/HOA industry to say that an individual's loan application is not the responsibility of the association. Mgmt cos still are unable to provide accurate information due to the "separation of responsibility" in their thinking and in the advise that boards were given even by attorneys.  
 
The financial industry has a strong interest in the financial stability of the community where loans are being granted. The amount of delinquent accounts, the ratio of investor units (FHA is kindest in this area), the existence of a special assessment, a balanced budget, AND reserve plan and funding - all are evaluated in the process of approving a loan.  
 
Unfortunately, many project reserves are underfunded due to delinquent accounts. So a 10% contribution may not be adequate to fund repairs. This should be a purchaser's evaluation since the financial institutions at this time are willing to accept the 10% level, even if it is the first year in several that monies are budgeted. Reserve funding is usually the last item covered when an association has financial problems due to delinquent accounts. 
 
Sellers are unaware of these requirements and often have no idea if their project is on the accepted list. Asking their board for this information usually does not clarify this. The owners in these projects are clueless about this requirement and especially about the delisting of projects this Dec 7th by FHA.  
 
Both sellers and purchasers should look to the HUD website for the status of a project. If the condo meets the requirements, the boards should take immediate effort to maintain their approval. For projects not on the list, additional efforts are required and the Reserve plan is crucial to this.  
 
Our company provides assistance in obtaining or renewing FHA certification. Other loan products are also requiring the Reserve plan and funding and have a lower threshold for percentage of investors. Their rates and required downpayments will vary with the information obtained regarding a project. 
 

Actually, for FHA loans, there IS NO REQUIREMENT for reserve amounts. And please... I welcome someone to show me where I am wrong here.  
 
The FHA does has a requirement that part of the ANNUAL BUDGET, at least 10% of the operating budget is made to a separate reserve account, but NO WHERE does it say this level has to be maintained. 
 
We just went through a go around on this where even though we are not an FHA approved property, a seller was trying to get an FHA Buyer in and they wanted us to change our budget. We were not opposed to this, but no one could give us documented answers as to what levels the reserves needed to be maintained, nor things such as what liabilities or actions would we be subject to in any future years that the 10% was not voted or approved in our budget. 
 
Likewise, there was no mention or documented example if during the year, a capital project was on going and funds from the reserves were spent, that replacements were needed on top of the 10% or more annual allocation. 
 
The wording of the regulation is also ambiguous. My reading, as well as several lawyers who I have shown the letter, agree that the language indicates that the requirement is that the reserve account is to be maintained at 10% or more of the operating budget, but you will see HUD and other commentary indicating that this 10% refers to the annual contribution, and has no basis on the actual reserve account balance. 
 
In short, it is very ambiguous, and you can be sure there will be major new tightening and regulations forthcoming

Consider First Time Home Buyer Programs in your city.. that will assist with your down payment. In Atlanta they have the ADA programs which pays 10% of your down payment. There are other incentive for certain neighborhood, which allow you to layer the down payment assistance.