Some time ago I wrote about how your listing agent might be ignoring 36% of the market by not helping your condominium association pursue FHA approval. Since then I have discovered that the bigger obstacle is actually condominium associations that are reluctant to pursue FHA approval. Here are the reasons that are often cited:
- Cost. Some consultants/attorneys have tried to charge as much as $1700 to facilitate the process. Some FHA lenders might require an attorney to certify that the condominium documents are in compliance with various requirements and that can cost up to $1000.
- It could change "the quality of residents that [the association] admits" (their wording, not mine)
- FHA has a stigma
- FHA's 3.5% down payment is more of the same garbage that got us into the current housing mess to begin with
- If the buyers don't have more than 3.5% to put down then what happens if the building imposes a special assessment? Will those buyers be able to cover it?
- Will FHA approval bring a lot of investors into the building?
This topic is fresh in my mind since we received two offers yesterday on one of our listings and both of them were from FHA buyers. The problem was that we had no hope of entertaining these offers since the homeowner's association board had previously decided not to pursue FHA financing. By a complete stroke of luck they had a board meeting last night and I was able to appear at the meeting with my clients to appeal to them. Once the board heard the arguments they unanimously decided to move forward with approval. It was a no-brainer:
- As pointed out earlier, FHA is now 30 - 40% of the market. Ignoring this market means lower price realization for sellers in the building and lower property values for everyone in the building.
- For short sellers, missing out on potential offers means either rapid price drops or even foreclosure. Now that's a stigma that no building wants!
- Investors can not get FHA loans
- Many of the current homeowners in a building may have bought with 5% down or less. Today they would be FHA buyers.
- FHA buyers look like everyone else buying a home these days. They have good jobs and decent salaries. They just don't have a conventional down payment.
- Today's move up buyers, who may have put 20% down on their last home, have had their equity wiped out as a result of the housing market's decline. Now they are FHA buyers.
- When people can't sell their homes they become landlords. Since FHA approval will help these people sell their homes it will probably reduce the number of renters in the building.
There may be a lot of misconceptions about FHA out there but once the facts are presented most homeowner association boards will make the right decision.