FHA – Denial of Mortgage for Properties with HOAs

To avoid FHA loan denial, you (and your lender) may want to check these circumstances immediately after signing contract (or earlier) to avoid spending money on a home inspection, only to discover the FHA loan you plan to use is denied.

As I understand, new FHA loans for purchases are denied if the following conditions exist (and yes, the lender will require the condo HOA to complete a “condo questionnaire” they send during loan contingency period – you hope):

(1)…..If a condominium complex is not already approved by FHA (as reported on the Approved HUD PUD (i.e., approved Condos) website) and the HOA board abides by HUD rules. (The HOA Board of the Complex itself may, with the approval of its membership, be authorized to submit applications for approval>)

(2)…..<=15% of the total units are delinquent in homeowner association HOA dues; or

(3)…..>=50% of properties within HOA are rented; or

(4)…..The HOA is involved in a lawsuit; or

(5)…..<10% of HOA budget is in reserves, insurance or other requirements to fulfill the FHA guidelines.

Where HOA membership is mandatory in a single family HOA subdivision, if the conditions above (excluding FHA PUD approval) are present, it’s quite possible the FHA loan for a prospective buyer will be denied. That’s why most HOA Conditions, Covenants, and Restrictions (CCRs) provide for rules against the possibility of these issues arising…but it doesn’t mean “all” single family HOAs are exempt.

Some other reasons for denial of FHA loan during my research – HOA Leasing restrictions in CCRs weren’t in compliance; Balance sheet did not show a separate bank account for reserve funds; and there wasn’t evidence provided for proper insurance coverage for HOA or management company.

References to products and services are not a specific endorsement, but the user must perform their due diligence and investigate whether the product or service is right for them. I welcome any or all comments that would help others.

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