The requirements to get your San Francisco condominium approved for an FHA loan have adjusted just this week.

Previously, if a condo building had not already been pre-approved by FHA, the buyer would have to go through a “spot approval” process, wherein the particular unit would be cleared for FHA financing. Just this week the FHA did away with the spot approval process, causing many buyers (and even agents) to think that if a building is not already pre-approved with FHA, a buyer could not use FHA financing to purchase within it.  That is incorrect, however, and the new process may even be MORE beneficial to FHA buyers. Here are the new guidelines:

There are two ways to approve a condominium for FHA financing that is not already approved on the FHA web site.

1. HRAP (HUD Review and Approval Process): Go through HUD for condo approval — this can take 4 to 6 weeks.
2. DELRAP (Direct Endorsement Lender Review and Approval Process): Go through a direct endorsement lender who has authority to approve the condo.  For example, Wells Fargo’s project approval team can approve a project in 7-9 business days (some lenders may take over 30 days to approve a condo). I am currently using Bank of America to assist me with getting my multi-unit property (soon to be condos) approved. The cool thing is the approval process can be done parallel to the last stages of the condo conversion process. The application will require submission of articles, by laws, budget and the HO6 “4 Walls In,” which is replacement coverage for all the interior appliances, flooring, cabinetry, etc., should there be a loss. You may already have this coverage depending on your insurance policy.

•  The cost to get an existing condo approved is $300.
• The cost of getting a new condominium approved is $1,000, which the developer normally will cover. 

Once a condo is approved, it is posted to HUD’s web page and added to the approved list.  Once a condo is added to the approved list, any lender can use the approval. Let’s look at two scenarios:

SCENARIO 1: The condo is already approved. Go to the FHA condo approval website to see if the condo is already on the approved list. If it is, only ONE additional item is needed: the FHA condo checklist.  This checklist is only seven questions and is used to make sure that the condominium remains sound and still conforms to FHA’s approval criteria. If a building is on the approved list, but the checklist reveals an item that no longer conforms to FHA’s guidelines, the condo will not be eligible for FHA financing.
 
Example:  A condo is on the approved list, but the FHA checklist reveals a 60% investor ratio.
 
This form should be completed as soon as you write an offer on a condo (and before the appraisal is ordered). Since the checklist is only seven questions, the management company should be able to answer them rather quickly.

SCENARIO 2: The condo is NOT Approved. If after checking the FHA condo approval website you learn that the project is not approved, the loan officer will need to start the approval process.  The necessary documentation varies depending on the “property classification” or whether the condo is existing, new construction, or conversion. The loan officer will work with the management company/developer to get the required documentation for the full FHA approval.  This information includes the condo questionnaire, HOA budget, recorded declarations, by laws, articles, HO6 “4 Walls In,” condo/plat map, flood certification, insurance, etc.

IN REVIEW: Always check the FHA approval website before you write an offer on a condo. The appraisal should not be ordered until the condo has been approved AND the FHA checklist has been received. If the condo is not on the approved list, the lender will need to approve the project, which will take extra time. Even if the condo is on the list, the FHA checklist is still required to ensure that it’s still within FHA’s guidelines.