Navigating Condo Financing: A Lender’s Process for Fannie Mae and FHA Approvals Buying a condominium can be an exciting step toward homeownership, but financing a condo comes with unique challenges compared to single-family homes. As a lender, when we receive a contract for a condo, we follow a meticulous process to ensure the property meets the strict guidelines set by Fannie Mae and the Federal Housing Administration (FHA). These guidelines are designed to protect lenders, buyers, and the financial stability of the condo project. In this blog post, we’ll walk you through our step-by-step process, highlight the Fannie Mae and FHA condo approval requirements, and share insights on potential pitfalls (and a few tricks we’ve learned!). Step 1: Checking Fannie Mae’s “Naughty List” and Our Internal Records The first thing we do when we receive a condo contract is check if the project is on Fannie Mae’s Condo Project Manager (CPM) list, which is updated daily. This list tells us whether the condo project has been reviewed and approved by Fannie Mae or flagged as ineligible (what we call the “naughty list”). For example, just yesterday, we opened escrow on a property that hasn’t been reviewed by Fannie Mae yet - it’s neither approved nor ineligible. This means we need to dig deeper. We also cross-reference the project with our internal records. As experienced lenders, we maintain a database of condo projects we’ve previously reviewed, which helps us quickly identify whether the project has a history of issues or approvals with us. Fannie Mae Condo Approval Guidelines Fannie Mae has strict eligibility requirements for condo projects to ensure they are financially stable and marketable. These guidelines are outlined in the Fannie Mae Selling Guide (updated as of April 1, 2025) and include both Full Review and Limited Review processes, depending on the project’s risk level. Here’s a breakdown of the key requirements: Owner-Occupancy Ratio: At least 50% of the units must be owner-occupied for established projects. The 50% ratio ensures the project isn’t dominated by investors, which can increase risk. This is not a concern for owner-occupied buyers but a problem for investors. Delinquency Rates: No more than 15% of the units can be 60+ days delinquent on their HOA dues. High delinquency rates signal financial instability in the project, which could jeopardize its value. (Hint – A lot of people run late and we often have to make a call and explain that it is 60 days late, not 59 or 58 days! You sometimes have to be diligent in getting condo approvals! ) Reserve Funding: The HOA must allocate at least 10% of its annual budget to a reserve account for maintenance and repairs. If a third-party reserve study shows adequate reserves, this requirement may be waived, but this is rare. Insurance Coverage: The project must have adequate hazard, liability, fidelity bond (for projects with 20+ units), and flood insurance (if applicable). Fannie Mae does not review insurance policies directly but requires lenders to verify coverage. (Hint – We can usually get these reviewed by Underwriting within 1 hour.) Commercial Space: No more than 35% of the project’s total floor area can be used for commercial purposes. Ineligible Characteristics: Projects with excessive litigation, hotel/motel features (e.g., rental desks), or deed restrictions (e.g., right of first refusal) are ineligible. (Hint – Lawsuits for construction defects are tough but slip and fall, and suing over a dispute of payments is usually easy to get around!) Structural and Maintenance Issues: Following the 2021 Champlain Towers collapse, Fannie Mae prohibits loans in projects with critical repairs, significant deferred maintenance, or evacuation orders. Lenders must review structural/mechanical inspection reports from the past three years. (After insurance, this is the biggest issue we are finding now, and Famnnie is actively reviewing condos to make sure they are compliant! A Limited Review may suffice for lower-risk loans (e.g., owner-occupied units with at least 10% equity), requiring less documentation. However, riskier scenarios (e.g., investment properties or new projects) trigger a Full Review, which involves a detailed analysis using Fannie Mae’s Condo Project Manager (CPM) tool. Suppose the project isn’t on Fannie Mae’s approved list. In that case, we order an HOA Certification (or a Limited Review HOA Certification for lower-risk cases) to gather financial statements, insurance policies, governing documents, and other required information. We prioritize obtaining and reviewing the project’s insurance coverage immediately to ensure it meets Fannie Mae’s standards. Pitfalls with Fannie Mae Approvals Daily Changes: Fannie Mae’s CPM list is dynamic, so a project’s status can change overnight, requiring constant vigilance. MOST LENDERS DO NOT PAY ATTENTION TO THIS!!!!! BUT WE DO!! Inadequate Reserves or Insurance: These are the most common reasons for ineligibility, even in Limited Reviews. Litigation Risks: Pending lawsuits against the developer can render a project ineligible. Documentation Delays: Gathering HOA documents can take time, especially if the HOA is unresponsive. Step 2: Evaluating FHA Condo Approval Suppose the buyer is using an FHA loan. We check whether the condo project is on the FHA’s approved condominium list, accessible through the U.S. Department of Housing and Urban Development (HUD) website. If the project is approved, we confirm it meets current FHA guidelines and proceed with the loan. However, if it’s not approved, we explore the possibility of a Single-Unit Approval (SUA), commonly called a “spot approval.” FHA Condo Approval Guidelines FHA has specific requirements to ensure condo projects are financially stable and suitable for FHA-insured loans. These guidelines were updated in 2019 to allow single-unit approvals, making FHA financing more accessible. Key requirements include: Owner-Occupancy Ratio: At least 50% of units must be owner-occupied. Delinquency Rates: At least 15% of units can be 60+ days delinquent on HOA dues. Reserve Funding: The HOA must allocate at least 10% of its annual budget to a reserve account. Insurance Coverage: The project must have adequate hazard, liability, and flood insurance (if applicable). Commercial Space: No more than 35% of the project’s floor area can be commercial. FHA Concentration Limit: For projects with 10+ units, no more than 10% of units can be FHA-insured. Only two units can be FHA-insured for projects with fewer than 10 units. Recertification: Approved projects must be recertified every three years. Ineligible Projects: Condotels, projects with excessive litigation, or those near undesirable areas (e.g., landfills or airports) are ineligible. Steps for FHA Single-Unit Approval (Spot Approval) If the condo project isn’t FHA-approved, we pursue a Single-Unit Approval, which allows an individual unit to be financed with an FHA loan even if the entire project isn’t approved. Here’s our process: Check FHA Concentration: We verify that the project doesn’t exceed the FHA concentration limit (10% limit for projects with 10+ units). For example, in a 50-unit building, no more than five units can have FHA loans. Confirm No Prior Denials: We search HUD’s records to ensure the project has never been denied FHA approval, as this could complicate or prevent approval. Gather Documentation: If the project clears these hurdles, we collect a full approval package, including: Condo Questionnaire Financial statements and budget (showing 10% reserve allocation) Insurance policies Governing documents (e.g., bylaws, articles of incorporation) Information on litigation, if any A survey or site plan (for new projects) Submit to FHA: We submit the package to FHA through the HUD Review and Approval Process (HRAP) or Direct Endorsement Lender Review and Approval Process (DELRAP). Obtain Case Number: We cannot obtain an FHA case number until the Single-Unit Approval is granted. Only then can we order the appraisal. Order Appraisal: To save time, we sometimes order the appraisal as a conventional loan first, then have the appraiser revisit the property after the case number is issued to complete the FHA appraisal. However, this can increase costs, as the appraiser may charge for two visits. Pitfalls with FHA Approvals Time-Intensive Process: Single-Unit Approvals can take 35-45 days to close. Costly Appraisals: Ordering a conventional appraisal first and then an FHA appraisal can double appraisal costs. FHA Concentration Limits: Exceeding the 10% FHA loan limit halts the process. Unresponsive HOAs: Delays in obtaining HOA documents can slow down approval. Recertification Risks: FHA-approved projects must be recertified every three years, and failure to maintain compliance can lead to loss of FHA eligibility. Why Condo Financing Is Complex Condos are riskier for lenders and insurers because the value of one unit is tied to the financial health and management of the entire project. Issues like high delinquency rates, inadequate reserves, or pending litigation can devalue the property and increase the risk of default. Both Fannie Mae and FHA impose strict guidelines to mitigate these risks, but navigating them requires expertise and patience. Tips for Buyers and HOAs Buyers: Work with a lender experienced in condo financing. Check the FHA-approved condo list or ask your lender to verify Fannie Mae’s approval early in the process. HOAs: Maintain at least 10% reserves, keep delinquency rates below 15%, and ensure adequate insurance coverage. Proactively apply for FHA or Fannie Mae approval to make your project more marketable. Conclusion Financing a condo involves navigating a complex web of Fannie Mae and FHA guidelines, from checking approval status to ordering HOA certifications and appraisals. As lenders, we’re committed to guiding buyers through this process, whether it’s verifying a project’s eligibility, pursuing a Single-Unit Approval, or using strategic tricks to save time. However, pitfalls like delays, costly appraisals, and strict eligibility criteria can complicate the journey. By understanding the process and working with an experienced lender, buyers can overcome these challenges and achieve their dream of condo ownership. For more information on condo financing or any financing, please contact us today! We’re here to make the process as smooth and transparent as possible. Please let me know if you have any questions or if a client needs my guidance. I’m just a call, text, or email away. 📞 Cell: 661-714-6258 TEXT: 661-714-6258 📞 Office: 661-260-2970 ext. 2222 📞 Direct Line: 661-291-2222 📧 Email: Mike@AugustaFinancial.com But wait, there’s more… Interest Rates The roller coaster is taking rates higher today! They were slightly lower yesterday, and we are much better than we were at the end of last week! I think we have climbed enough and I am ready for a big drop! Loan Programs We offer 12-day escrows for pre-approved buyers - Conventional/FHA/Jumbo/Bridge loans. We provide loans in all 50 states, so call me with anything you need. Government loans (FHA/VA/USDA) are in the 6’s. Conventional loans up to $806,500 are in the 6s. High Balance Loans from $806,501 to $1,209,750 are also in the 6’s and 7’s. Jumbo loans above $1,209,750 are in the 6’s and 7’s. Bank statement loans are available with 10% down again, with larger down payments in the 6’s ++. Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement! 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,300,000. Private Money lenders offer Hard Money Loans with 35% down. No Ratio Loans require 30% down. DSCR (Debt Service Coverage Ratio) loans are available with as little as 15% down. Bridge Loans typically have an interest rate of 7.99% with limited fees, helping you get where you need to go! 3/2/1 Buydowns, 2/1 Buydowns, and 1/0 Buydowns are available at great starting rates! Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits. **Good News for Condos:** – Nothing new! **Bad News for Condos*** Pallisades – Stevenson Ranch – Insurance and reserves are the issue there! Annadale Condos– Agoura CA – Roof repairs are needed, but there is a lack of reserves and insurance issues! The full state of California naughty list has been added to MikeMeena.com! See the link below: https://mikemeena.com/non-warrantable-condos/ Let me know if you hear anything new about condos or townhouses. I am available every day if you need anything. 📞 Cell: 661-714-6258 TEXT: 661-714-6258 📞 Office: 661-260-2970 ext. 2222 📞 Direct Line: 661-291-2222 📧 Email: Mike@AugustaFinancial.com Have a great day, and an even better tomorrow! Please call me when you have a client who needs to borrow! Mike Meena President | Loan Officer Click to Call or Text: (661) 714-6258 This entry has 0 replies Comments are closed.
