HUD recently announced that they are going to do away with Condominium “spot” approvals for FHA and that the Right of First Refusal clause that is in so many condo declarations will no longer be an road block for.
First let’s clarify what a “Spot Approval” is. We all know by now that if you are obtaining an FHA loan, you can’t purchase just any condominium that is for sale. It has to be “approved” by HUD and meet the FHA requirements. There are two ways this is done:
1. The building is already approved through HUD and therefore you may purchase a unit in that building. This is called a “Project Approval”.
2. The building is not already approved so the lender requires the association to complete a form with a series of questions and if all of them are answered within the FHA guidelines, that particular unit may be purchased by a buyer who is using an FHA mortgage. This is a “Spot Approval”.
It is my understanding that FHA is heading towards requiring only a Full Project Approval per building and will no longer accept the individual Spot Approval per transaction. They are also saying that the Right of First Refusal will no longer avoid a building from obtaining FHA financing.
What it means is that if you are a buyer and want to purchase a condo in a building with an FHA mortgage and the building does not already have a Project Approval through HUD, the building needs to obtain one. Who does the leg work? We don’t know who will be responsible for applying for the approval through HUD. Lenders can do it, the management company can do it and I’ve heard that attorney’s can do it. We assume it will be the lender’s since they are the mosed versed in the process.
Here’s what we don’t know yet: what it will cost to get the approval – $800, $2,000? And how long it will take: 30 days, 90 days? Does the lender pick up the cost for their buyer?
It creates a sticky situation for the first FHA buyer in a building but once a project approval is obtained, then the building is open for other FHA buyers without having to go through the individual spot approval process. In the long run, this will open up a world of condo’s for FHA buyers and do away with the worry that the building may not allow your financing.
We still don’t know if and when this will be rolled out so if you are a buyer using an FHA mortgage, it’s best to proceed with the Spot Approval process. In fact, it will most likely be easier and quicker to obtain than this new process, at least in the short term.
For a list of Condominiums whom already have a Project Approval with HUD go to HUD Approved Condominiums and search by zip code.
To apply for an FHA or First Time Home Buyer Pre-Approval, go to my website at RWF Mortgage. RWF Mortgage is a direct affiliate of Wells Fargo Home Mortgage.
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