FHA Loans, Easy To Qualify, Hard To Find

FHA loans allow you to qualify with little money down and a lower credit score than with conventional financing. For these reasons, FHA loans are the preferred and sometimes only option for 1st time home buyers or those with blemishes on their credit reports looking to enter the real estate market.

FHA has its downsides. Mortgage Insurance, both upfront and monthly, strict appraisals and impound accounts.

The biggest challenge however is one that has nothing to do with the loan itself but the property type and location.

Here in Southern California, where the median price for a single family home is roughly 415,000. Most home buyers begin home ownership by purchasing a more moderately priced condo. The issue becomes wether a complex is currently approved for an FHA loan and quite often it is not. In short, FHA Loans are easy to get. Finding FHA approved condos, not so much.
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So which complexes are approved for FHA?

Take 91915, a Chula Vista Zip Code for example. Out of 18 condominium projects listed on HUD’s approved list, only 6 are approved for FHA loans. If you can only qualify for FHA and are set on living in 91915 you have been reduced to 33% of the market.

What’s more frustrating is even though a complex may be approved on HUD’s list, there are other factors which may make it ineligible for FHA Financing. These include Owner Occupancy, HOA Delinquency and Litigation.

FHA has strict guidelines for conditions in which they will lend in a complex. Owner Occupants must exceed 50% of all units, 1 owner cannot own more than 10% of the units, HOA Delinquency, homeowners behind on their HOA dues cannot exceed 15% and there cannot be any type of lawsuit or litigation involving the HOA.

To Recap, to buy a condo with an FHA Loan, it must be in move-in condition, be on HUD’s approved list, have more homeowners than renters, hope everyone is paying their HOA Fees and no litigation. As easy as it is to qualify, it may sometimes lead home buyers to settle for something less than what they wanted and typically pay more due to FHA’s insurance premiums.