HUD lifting long-standing policy of denying all condominium projects with a right of first refusal provision.
FHA has been the buzz for many REALTORS working with buyers these days, and for many there are more questions than answers about the process. For some, it is new ground, but FHA has been on the scene for years, it’s all of the recent changes that have had us in a bit of a spin. When it comes to condos, REALTORS are faced with knowing the condo is FHA approved, if the development is not, then you are looking at the FHA spot approval process.
Our biggest challenge has been with the Condo right of first refusal. This is in the condo bylaws of most, if not all, of our older condo stock. This provision gives the condo association the right (first right) to buy the unit from the unit owner after they obtain a contract. It is rarely, if ever, used. FHA has long viewed this provision as having the possibility of being discriminatory. So it has been a long standing rule.....No FHA if there is right of first refusal.
Because in the Chicago market we are finding great affordability in the older condo stock, this has been a big problem for Chicago REALTORS and our clients. So when FHA had its come back, REALTORS moved to work with associations to remove the provisions from the bylaws. And yes there is a cost to it which most associations did not want to pay! But here is the good news: According to the Illinois Association of REALTORS, on June 12, 2009, “Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100, essentially lifting HUD’s long-standing policy of denying all condominium projects with a right of first refusal provision.” This is an awesome first step and a victory for condo home buyers in any major market! FHA is going to be a major part of financing residential homes in America, and it's important to know the process; how the loans are underwritten and processed. More importantly, our listing agents need to know if their properties qualify.
A 4-1-1(For your information): there are many local banks that have portfolio non-FHA type loan products if FHA does not work for you on a particular transaction. These loans are almost carbon copies of an FHA loan with low down payment requirements, but do not have many of the FHA guidelines. So, if you get a no-go with your spot approval questionnaire don’t give up hope too fast. To name a few check out Harris Bank and the Northern Trust, both offer great FHA like products.
Over the last 17 years I have seen FHA opening the door for many to find affordable and suitable home ownership, and I am happy to see it back on the scene. It’s important to understand the process and to become an expert on the subject. I recommend we start learning and start talking about it. I would love to hear from you and please share your stories on FHA, with the good and bad, as well as how this has impacted you. Let us know if you have a sale in the pipe line with the new change and how it’s working out. Also let me know if you would like to see more FHA 101 blog posts. Just call me Mr. FHA! Take care and keep up the good work Chicago REALTORS!