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FHA Recertification

FHA Recertification

 

In 2010, the Department of Housing and Urban Development (HUD) turned the financing of FHA mortgages upside down by announcing the end of spot approvals for condominiums and a new requirement of biannual community-wide certification for FHA mortgages. Many condominium associations went through the process of obtaining initial FHA approval, but the two-year recertification period has now come and gone – or is approaching expiration – for many of those communities.

WHEN TO SEEK RECERTIFICATION:  Condominium associations can seek recertification up to six months before and six months after the expiration date of their FHA certification, which is good for a two-year period. This process is essentially identical to the process of obtaining the initial FHA certification – with minor tweaks in HUD’s documentation requirements.

Associations should calendar the expiration dates of their certification to ensure that recertification can be obtained without a gap. When associations wait to seek recertification until a potential buyer discovers that s/he cannot obtain an FHA mortgage, unit sales often fall through due to the typical six to eight week approval process. Since many industry commentators suggest that 30% to 40% of condominium mortgages are FHA-backed, FHA certification should increase the potential market for buyers of condominiums in an association.

BARRIERS TO CERTIFICATION:  Whether an association is seeking initial certification or recertification, the following issues are the most common barriers that prevent associations from obtaining FHA approval:

  • Delinquencies are in excess of 15% of the membership.
  • There is ongoing litigation that is not covered by insurance – especially litigation involving construction defects.
  • Rentals exceed 50% of the total number of units.
  • There is inadequate reserve funding – less than 10% of the annual budget.