Whether you’re going for an HRAP (i.e. through FHA) or DELRAP (i.e. through an authorized FHA-delegate lender such as the Ethical Homes team) approval, the necessary documents are the same. Full details are included in FHA’s mortgagee letters 2009-46A and 2009-46B, and further clarified in mortgagee letter 2011-21; however, here’s a brief overview of the documents that need to be included for all existing condo developments:

• Most recent HOA budget

• Most recent HOA financial statements

• Copy of HOA master insurance policy

• Recorded condo/plat map indicating legal description

• Recorded condo site plans

• Recorded condo declarations and any or all annexations and amendments that apply

• Copy of executed and adopted condo by-laws

• Articles of Incorporation as filed

• FEMA Flood Certification Form

• Outstanding/Pending Litigation Analysis

• Special Assessments Analysis

• Last Two HOA Meeting Minutes

• HOA management agreement, or if self-managed, a letter on HOA letterhead indicating that fact

In addition, the application should include the following information:

• Number of units in development that are currently bank-owned REO

• HOA tax ID number

• Month & Year that condo was completed

• Standard FHA certification questionnaire

(The above documents are for existing condo developments that have been complete for more than 12 months; developments that were recently completed or that are still under construction will usually have more extensive documentation requirements.)

Have more questions about the process of applying for FHA certification?

If you’d like to submit a DELRAP application, the Ethical Homes team would be glad to assist you; just contact us and we can get the process started.

If you’d like to submit an HRAP application, we unfortunately can’t assist you directly; however, we’d be glad to refer you to attorneys who are able to do so. Again, just contact us and we can get you started on the way to getting your condo development certified.

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There are four key points to the new system of approving condos that are important to understand:

• First, HUD did away with what were known as “spot” approvals, where individuals looking to purchase a unit in a condo development could get approved for FHA financing even if the development as a whole was not approved; instead, the only way that anyone can be eligible for FHA financing for a unit in a condo development is if the condo development as a whole is on the approved list.

• Second, since the FHA approval status of a condo development affects everyone involved–buyers looking to purchase units in the development using FHA financing, homeowners already in the development who want to sell to those buyers, agents and lenders looking to facilitate those transactions, as well as the condo association (which should usually be protecting the interests of the unit owners by keeping the condo development FHA approved, which increases the number of buyers who can purchase units in the development, which in turn increases demand there and helps support property values for the unit owners)–any interested party is in theory allowed to submit an application to get the entire condominium development approved.

  However, it’s important to keep in mind that for technical reasons, no application can successfully be submitted without the cooperation of the Board of Directors of the condo association, as well as any management company that the Board may have retained to help manage the association. It’s essential that any interested party get complete buy-in from those entities before spending time and money to attempt to get a condo association approved; while it’s almost always in the best interests of the unit owners (and thus, in theory, the Board that represents them) to allow any interested party to get the entire development approved, we’ve recently seen isolated instances where parties such as the management company or attorneys retained by the Board have advised the Board not to cooperate with outside requests to get the condo development FHA-approved–from what we can tell, for no reason other than so that the entities in question could instead charge the association large sums to perform those same tasks on their behalf.

• Third, it’s important to know that HUD now has two pathways that interested parties can follow to process an application for FHA approval of a particular condo development: the HUD Review Approval Process (or HRAP), and the Direct Endorsed Lender Review Approval Process (DELRAP).

  When using HRAP, the application is submitted directly to HUD, who will usually take 6-8 weeks to process it. The HRAP application itself is free, but most of the time interested parties end up incurring significant costs in the form of fees paid to attorneys, management companies, etc., to prepare the application for them.

  When using DELRAP, the application is submitted to a mortgage lender who has been authorized by HUD to process applications on their behalf, and the approval process for DELRAP usually takes about 1-2 weeks. DELRAP generally costs about $500-$1000 (depending on whether the condo development in question is of recent construction and whether it has been previously approved for FHA financing), which is often (but not always) on par with or less than the fees charged by attorneys to handle an HRAP application.

  The documentation needed for an application is the same for both HRAP and DELRAP. For both HRAP and DELRAP, there may also be additional 3rd-party costs involved; for example, condo management companies will often charge fees in the $200-500 range for copies of the documents needed in the application–and they are, sadly, not averse to charging those fees to anyone who needs those documents, including the very associations on whose behalf they are maintaining those documents.

• Finally, under the new system, approval of a condo development for FHA financing expires in 2 years, and approvals issued before the change in rules in 2009 (which were originally permanent approvals) were also changed to expire; as a result, the fact that a condo development was previously on the HUD list of condos approved for FHA financing doesn’t mean that it currently is–agents, buyers, and homeowners are all advised to double-check the current status of a particular condo development before making any decisions regarding buying, selling, or refinancing.

As a general rule of thumb, here’s what we tend to recommend for people considering applying to get a condo development approved for FHA financing, depending on who they are and what their situation is:

• For sellers looking to put a condo on the market, buyers thinking about putting in an offer on a condo, or homeowners looking to refinance a condo, we recommend going with the DELRAP procedure, as most real estate transactions cannot survive the 2+ month delays that HRAP usually entails. As noted above, it’s essential for either DELRAP or HRAP to have the support of the Board of Directors for the process, so we recommend contacting them as soon as possible to make sure that they will cooperate, and if so, to see whether they might be able to initiate the DELRAP process on your behalf and cover the relevant fees. (Note that any FHA certification costs are NOT considered to be closing costs as part of a sale of an individual unit, and cannot appear on a HUD-1 settlement statement: buyers or sellers needing such an approval as part of an active transaction are advised to negotiate contingencies to allow that process to proceed separately from the purchase itself, and will have to pay any associated fees out of pocket if the Board will not cover those costs.)

• For condo associations that are considering getting FHA certification for their condo development, we recommend checking to see how much your attorneys and/or management company will charge to process the application. If that amount is comparable to or higher than the DELRAP fee, then the DELRAP approach usually makes sense; if the cost of attorney’s feed, etc., is less than the DELRAP fee, then HRAP might make more sense. (Depending on your attorney’s level of familiarity with the HRAP process, however, some associations opt to pay a slightly higher fee to go the DELRAP route so that they can be advised by someone who is more familiar with the process.)

Interested in pursuing an HRAP approval? We’ve put together a brief overview of the documents you’ll need to provide as part of your application, and would be glad to refer you to attorneys who can help with filing your application if you need further assistance.

Interested in exploring your options for a DELRAP approval? The Ethical Homes team can process DELRAP applications for you through our wholesale lenders. We do not charge any fees to do so–all you would pay would be the exact DELRAP fee that the wholesale lender is authorized by HUD to charge. Contact us for more details on how to begin that process.

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With an FHA Streamline refi, you can refinance your current mortgage with a new FHA mortgage; in the process, you’ll (usually) get a refund back of a prorated portion of the Upfront Mortgage Insurance Premium (UFMIP) that you paid when you obtained your original mortgage, and often be able to waive many of the fees that would otherwise apply to your new mortgage, resulting in savings of potentially thousands of dollars versus a traditional (non-streamline) refinance of the same mortgage. Streamline refinances also often allow the borrower to skip the appraisal, adding still more savings while also removing the risk of a low appraisal causing issues with the refinance.

In addition, FHA’s guidelines for streamline refinances are much more lenient than the guidelines for most refinances. Most lenders add overlays to FHA’s guidelines, but as a mortgage broker that works with dozens of wholesale lenders, we have access to programs that still follow most of FHA’s more lenient requirements. Among the features that we can offer include:

• No appraisals. Many FHA Streamline lenders do still require appraisals for streamline refinances, even though that is ostensibly one of the biggest appeals of the streamline refinance. Since we can offer true no-appraisal FHA Streamline refinances, we can help many borrowers whose properties whose values have declined and are now “underwater” or otherwise ineligible for a refinance because of property condition/value.

• Condo units & buildings do not need to be FHA approved. Most FHA Streamline lenders require the condo development to be on FHA’s list of approved condos; if they aren’t, the condo association must spend weeks preparing paperwork to apply for approval, and then wait 6-8 weeks (or longer) to get that approval back from FHA. Because we can do FHA Streamline refis without requiring condos to be on the FHA approval list, however, we can avoid those delays, and also do those refinances on condos that wouldn’t be able to get approved because the don’t meet current FHA guidelines.

• Condo associations do not need to complete a condo questionnaire. Most FHA Streamline lenders are requiring these questionnaires even for condos that are already FHA approved, meaning borrowers often have to pay fees to their condo association to have the questionnaire completed, and then based on the contents of those questionnaires, their refinances might be denied because of issues such as a high percentage of units rented out (aka high “investor ratios”), low budget reserves, or ongoing litigation against the condo association. Since we can do FHA Streamline refinances without requiring condo questionnaires, we can avoid those issues entirely.

• No income or employment requirements. Most FHA Streamline lenders insist on all borrowers being currently employed with stable income, meaning many of the people who are in the most need of a refinance to reduce their monthly payments (i.e. those who have lost their job or had their hours/wages reduced) are barred from getting the help that they need. We can originate FHA Streamline refinances without requiring current employment or stable income, so that borrowers who just need some help reducing their payments in order to get back on their feet can do so without getting caught in a Catch-22.

• No debt-to-income ratio (DTI) maximums. Most FHA Streamline lenders have maximum ratios of monthly debt payments vs. current income, which again hurts many of the borrowers who are in most need of a refinance (e.g. ones who have hit a rough patch and needed to use their credit cards more than they would prefer to tide them over). As long as the refinance will provide a “Net Tangible Benefit” to the borrower (e.g. reducing their payment, or getting rid of an adjustable rate to make their payments more stable), we can do FHA Streamline refis without regard to current debt/DTI levels.

Note that many of the features above do result in slightly higher rates for the borrower, so for borrowers who don’t need to take advantage of them, we don’t advise using them just to make the loan process more convenient.

Got an FHA mortgage now, and interested in exploring your options for an FHA Streamline Refinance? Contact us and we’d be glad to go over your scenario with you and see if one might make sense.

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The “investor ratio” for a condominium development is simply the number of units in the development that are currently “non-owner occupied” (i.e. rented out) divided by the total number of units in the development, expressed as a percentage; if a condo development has 200 units, of which 40 are rented out and the remaining 160 are owner-occupied (as either a primary residence or a second home), then the investor ratio would be 20% (40 divided by 200).

For conventional mortgages that fall under Fannie Mae and Freddie Mac guidelines, loans generally cannot be made on condos in developments where the investor ratios are higher than 40%. (Fannie Mae technically no longer has an official maximum investor ratio guideline, but I have never heard of a Fannie Mae loan being approved with a ratio above 40%).

Loans requiring private Mortgage Insurance (MI) are handled much the same way as other conventional mortgages, but all MI companies currently also impose a 30% cap on investor ratios; since MI loans must meet all conventional underwriting guidelines as well as all MI guidelines, that 30% cap supercedes the 40% cap.

Many lenders, moreover, impose their own more-stringent restrictions on conventional mortgages, and usually cap investor ratios in the 20-30% range (with some having caps as low as 15% or even 10%).

The traditional fallback solution for developments with high investor ratios has been to use an FHA loan, as FHA loans allow investor ratios as high as 49%, and most lenders do not impose their own restrictions on the investor ratios for FHA loans. (FHA loans do have slightly higher fees and rates than conventional mortgages, but for many high-investor-ratio developments, they are often the only available mortgages.)

For developments with investor ratios above 49%, other options do exist; the Ethical Homes team can place loans with certain lenders, for example, who can approve loans on properties with investor ratios 60% or higher. Note that these approvals are not guaranteed; they depend on many factors, including the specific condo development as well as the size of the down payment (which needs to be at least 20% of the value of the property), and need to be evaluated on a case-by-case basis.

We strongly advise borrowers to work with their agent and mortgage broker to find out what the investor ratios are for a particular condo unit before submitting an offer on it; if you find yourself needing to put an offer on a property that does have a very high investor ratio, feel free to contact us and we can help you determine whether a loan on that property might be possible.

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Arlington real estate agent Steve Hawkins gives some quick tips on his website about ways that homeowners can go green, even if they live in a condo, where some of the bigger projects like installing a geothermal system or a green roof might not be feasible.

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