Fha Approval Process For Single Family Housing

Recently, many Associations have inquired about becoming FHA-approved so that properties listed in their community association can be marketed as being “FHA-Approved”. The first issue to point out is that the need to be approved for FHA “condominium loans” is specific for residences that share walls (whether you are a condominium association or a homeowners association). If your association contains detached condominiums, then this does not apply, nor does it apply for a subdivision of detached single-family residences (detached projects are known as Site Condominiums).

The next question: Has your Association already been approved in the system? To find out if your Association had been approved previously, visit https://entp.hud.gov/idapp/html/condlook.cfm.

There are two methods of approval—the HUD Review and Approval Process (HRAP) and the Direct Endorsed Lender Review and Approval Process (DELRAP). If the Association wishes to become pre-approved for FHA-backed loans, the Association will have to do the leg-work, so to speak (HRAP). For DELRAP, the lender submits the application for the Association to become approved after receiving a loan application/real estate contract for the property.

To become “Pre-Approved” through HRAP, it is important to point out that the process is very time and document intensive, and requirements have been changing slightly over the past few months. One other issue is that just because your Association becomes “pre-approved”, it doesn’t necessarily mean that HUD will not require a follow-up application to make sure qualifying criteria for a specific Association has not changed since the HRAP approval (certification lasts two years).

The following are a basic outline of the requirements for HRAP approval:

1) Must be at least 2 units in Association;

2) Association must be covered by hazard, liability, and flood insurance;

3) Hazard Insurance must be 100% of replacement value, including foundations, excavation and other items normally excluded from coverage;

4) Fidelity Insurance coverage must equal at least three months aggregate assessments on all units plus the amount of reserves (for 20 or more units);

5) If the property is in the 100-year flood plain, then adequate flood insurance must be obtained;

6) Documents with a “Right of First Refusal” or other language may not be approved if the clauses are considered discriminatory;

7) Not more than 25% of the square footage may be used for a commercial purpose;

8) 10 or less units: no person/entity may own more than 1 unit; 11 or more units: no more than 10% of the units may be owned by one person/entity;

9) No more than 15% of units can be 30 days or more delinquent;

10) 50% of units must be owner-occupied, for Associations still in transition or phasing, different requirements may apply;

11) Not more than 30% of the units of an Association can have FHA financing;

12) Reserves must constitute at least 10% of the annual budget (questionable reserves/budget may require a reserve study to be requested);

13) At least 30% of the total units must be sold prior to the endorsement of a mortgage.

The above are just an outline of the general requirements—however, some may be more intensive.

Next, the Association must move forward with document submission including a Cover Letter (Application Form), recorded Plat Map, recorded Declaration and Bylaws, Articles of Incorporation, recorded Site Plans, Plan/Evidence of Transfer of Control, Budget, Management Agreement (if applicable), EEOC Certificate (Form HUD-92010), Builder’s Certification of Plans (Form HUD-92541), FEMA Flood Map, Estimated Constructions Completion Date (if applicable), Outstanding/Pending Litigation Analysis and Pending Special Assessment Analysis.

After these documents are compiled, application is sent to HUD Office in Philadelphia office. Approval time is typically 90 days, depending on documents requested by HUD.

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