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In Orange County, CA FHA is the primary source of mortgage financing for First Time Buyers, or anyone with less than 20% down payment. (FHA is not only for First Time buyers.) When FHA loan limits in Orange County recently increased to $729,750, things really opened up for homebuyers with little down payment. Buyers looking at single family residences can easily take advantage of the low down payment an FHA loan allows. However, if they are considering the purchase of a Condo, there are other things to consider. To get FHA financing on a Condominium, the Condo project must be FHA approved. The HUD website has an online searchable database, which can be found by clicking here.

Buyers will find that many Condo projects in Orange County are not FHA approved. There are a few reasons for this. FHA has traditionally had low loan limits, so only low priced Condo projects had approval. Now with loan limits very high as compared to what they typically were (last year the limit was $362,790), there are a lot of Condo projects that never went through the approval process. Normally it would be the builder who would have a project approved, which would help them to sell the properties. But if the project was outside of the loan limits then there would not have been a reason for the builder to go through the tedious process. The other reason that many projects are not approved is that over the past several years there were many other types of financing available that allowed home buyers to purchase a home with $0 down. At the time FHA required 3% down payment. FHA financing was rarely used in Orange County and other high cost areas because of the easy financing available with these other programs. Times have changed and these other programs are gone. But if a project needs to be FHA approved, what is the quick answer to the question: How do I get FHA financing on a Condo that is not FHA approved?

Spot Approvals for Condominiums in Orange County, CA

Fortunately there is another solution. It is called “FHA Spot Approval” and is not a very difficult process for a lender who has previous experience with FHA Spot Approvals. Below are the requirements for Spot Approval.

• The project must be competed. There should not be any ongoing construction of additional units or common areas.
• Control of the common areas for the project must have been turned over to the home owners association for at least one year.
• The home owners association must provide proof of insurance. (Hazard, liability, flood)
• Individual units in the project must be owned in fee simple or be an eligible leasehold interest. the project’s legal documents must provide for undivided ownership of common areas by unit owners. By virtue of this ownership, unit owners must have the right to use all facilities and unrestricted common elements.
• The projects documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is generally unacceptable. Such restrictions include rights of first refusal and restrictive covenants. Certain governmental or nonprofit programs designed to assist in the purchase or rental of low-moderate-income housing are exempted from the restrictions on conveyance provisions.
• At least 90% of the units in the project must have been solds.
• At least 51% of the units in the project must be owner occupied.
• No single entity may own more than 10% of the units in the project. “Entity” includes as individual partnership, corporation, limited liability company, limited liability partnership, joint venture, investor group or other natural or legal person qualified to hold an interest in real property. The 10% restriction does not apply whenthe ownership of less than three units would disqualify an otherwise eligible project.
• HUD recognized that the 10% cap on the number of units that may secure FHA insured mortgages in a given project can place a small project at a disadvantage, since only a few units will invoke the limit. Accordingly, a two-tiered system was established. For condo projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time. Condo projects consisting of 30 units or less, can have up to 20% of the units encumbered by FHA insured mortgages.

So for those cities in Orange County, like Newport Beach, Costa Mesa, Irvine, Huntington Beach, or any of the south Orange County cities with high priced Condo projects, there is a way to get FHA financing.

For Orange County, CA VA home buyers, they should also check out the VA Condo approval list

****Effective October 1, 2009 the Spot Approval process is being eliminated by HUD. Rather than approve an individual unit the entire project will need to be approved. Learn more about the new rules for FHA financing of Orange County, CA condo projects.****

Authored by Tim Storm, an Orange County, CA Loan Officer – Please contact my office at Trust One Mortgage for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

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*Trust One Mortgage Corporation is licensed and supervised by the California Department of Real Estate (“DRE”), License # 01087829