Article
Courtesy of The Sun Sentinel
By Daniel
Vasquez
Published September 23, 2009
It
may be a buyer's market for those looking to purchase a South Florida
condominium, but a new FHA rule putting an end to "spot
approvals" for home loans may burst the shopping bubble and make it
much more difficult to qualify for a loan.
By extension, the same rule may also mean more bad news for condo sellers,
already suffering through a bad economy which has sent property values
into the Dumpster, since it impedes buyers' ability to purchase. And the
financial pain could eventually spread to all Florida homeowners by way of
higher property taxes, say experts.
What is happening: Beginning Nov. 1, a new Federal Housing
Administration rule goes into effect that disallows a loan process called
"spot approvals," which gave loan underwriters the authority to
approve individual units rather than an entire building.
The reason such authority was so helpful to buyers is the cost and
paperwork for a condo association to get an entire building approved by
the FHA is onerous at best, costing tens of thousands of dollars for
appraisals, structural engineering reports and other reports.
Spot approvals, in comparison, only require an association representative
to spend 15 minutes filling out a single-page form. Those loans are prized
by buyers because they generally have lower interest rates and require
much lower down payments, about 3.5 percent of the purchase price compared
with conventional bank loans, which may require up to 30 percent down.
Now, without spot approvals, condo buyers and owners will not be able to
get an FHA loan for units in a non-approved building and will have to rely
on conventional bank loans or pay cash, said Theresa M. Schmitz, a senior
underwriter for Amerifirst in Fort Lauderdale.
"This poses a potential downward trend in condo values because many
people can't afford to put such a large down payment down on a
condo," Schmitz said. "And if there is a smaller pool of buyers,
the market value of condos will decline even further and a condo unit will
only be worth what a cash buyer is willing to pay for it."
Ripple effect: It also stands to compound the current real estate
market problems that have caused cities to raise tax rates, Schmitz said.
"Single family homeowners may think this doesn't affect them, but
indirectly it will. When the condo assessed valuations plummet, our
collective tax base will decline. Single family homeowners will pick up
the slack with a hike in the millage rates and property taxes."
What you can do: Board members should check the federal Housing and
Urban Development (the department that oversees the FHA) website https://entp.hud.gov/idapp/html/condlook.cfm
to
determine whether their condominium complex is on HUD's approved list.
Daniel can
be reached at [email protected]
or at 954-356-4219 (Broward County) or 561-243-6686 (Palm Beach County).
His condo column runs every Wednesday in the Local section and online at www.sunsentinel.com/condos
. Check out Daniel's Condos & HOAs blog for news, information and tips
related to life in community associations at www.sunsentinel.com/condoblog
.
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