Per Civil Code 5300, beginning July 1, 2016, all condominium associations must disclose their FHA/VA status in the annual budget disclosure.
The biggest question arising from this is, “Is the Association legally obligated to become FHA or VA Certified?” The answer is no, there is currently no legal requirement for a Board of Directors to seek FHA or VA Certification for their condominium project. It does, however, fall under the fiduciary duty of the Board to at least consider it.
Below, are some reasons to consider whether or not becoming FHA or VA approved:
Some Benefits of being FHA approved:
- FHA approval increases the pool for potential new homebuyers.
- Having a larger pool of prospective buyers increases competition for the demand of the product, potentially resulting in higher purchase prices and an increase in market value.
- FHA certification is necessary to get a Reverse Mortgage.
- FHA/VA approved communities tend to be more marketable. The units are easier to sell and often at a higher price.
- Decreased rental ratio: buyers who use FHA loans are more likely to live within the unit, and not rent it out. Communities without FHA approval often attract investors who will rent out the property for a profit.
Some of the Misconceptions of being FHA approved:
While there are no “cons” to being FHA certified on which expects can agree, these are the two most misconceptions about FHA Condo Approval:
- FHA and VA are lenders. This is false. The FHA and VA provide mortgage insurance to banks, credit unions, and other lenders.
- Being FHA Certified will bring in “low-income” buyers. This is false. FHA Condo approval is unrelated to affordable housing programs.
Some other facts you should be aware of regarding FHA/VA Approval:
- How much does it cost to become FHA/VA Approved? Anywhere from $765-850. This fee includes all condo plans, annexations, supplemental CC&Rs, and tract maps.
- Who is responsible for paying for this? The Association is not legally obligated to pay for the Certifications. Many Associations will, however, cover the cost because it benefits the entire community. It is also common for a homeowner, realtor, lender, or other interested party to pay for the submission.
- How long does the process take? Processing time can vary depending on the Regional HUD or VA office that is reviewing the project, usually between 2-4 weeks. The comprehensive eligibility review takes 2-3 business days.
- Does FHA or VA certification require Board approval? No. The Board does not need to approve the process. Current owners have a legal right to all the documentation necessary and can proceed without approval from the Board. However, if you are a homeowner seeking FHA/VA approval, it is recommended to discuss this with the Board of Directors first.