Purchasing a condo that is not FHA approved

In the Denver metro area a trend, that is further depressing home sales, is the increased standards required for a condominium project to have Federal Housing Administration (FHA) approval. Thankfully, these standards do not currently apply to townhomes. Astute real estate agents will verify the exact status of what appears to be a townhome, however some townhomes have a condo legal description which makes it fall under FHA rules for a condo. Not a good situation to see a buyer pay for an inspection and appraisal, then find out that the buyer is approved, but the property is not.

One recent study showed that only one third of the condominium developments in the Denver area were eligible for FHA financing because of the more stringent requirements. In Commerce City the situation is even more depressing, with only one out of fourteen condo developments being approved. As FHA financing is by far the most common option for buyers under $200,000, this presents a real challenge for sellers.

We should remember that if FHA financing is not an option, buyers have other choices such as VA loans, conventional mortgages, AND portfolio products. While VA and FHA mortgages are both government loans, the standards for FHA condominium projects are much higher than for VA loans. Keep in mind that because a project is not FHA approved does not always mean it is ineligible for VA financing. Portfolio products are mortgages that a lender keeps in their own portfolio and do not sell on the secondary market. Hence the lender has more flexibility in designing qualification standards. Portfolio products, in most cases, will have higher borrower standards such as credit score, down payment, etc, but they are a viable option.

Chip Allen

Crestline Mortgage Bankers

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