You might recall last week’s post about new FHA guidelines, which could undermine the condo market.

A mortgage broker in Chicago, Illinois views these new FHA condo project approval rules as positive for Chicago.  He predicts an uptick in FHA condo financing after October 1st.  Check out his blog post.

Leif Swanson and I were talking about this over the weekend. Here in Phoenix, Arizona, we have a different opinion.  We’re seeing these new FHA condo approval rules as a death toll to condo sales:

1.  Many of the smaller condo projects cannot afford the estimated $10,000+ FHA project approval fee (it’s not worth it to them just to be nice and expand financing options for buyers) so they are not seeking FHA approval.  This is where Spot Approvals came in handy.  But after October 1st, no more spot approvals.  This means it is highly unlikely buyers can get FHA financing for smaller condo projects.  Under 100 units?  And how many of the larger projects can afford the application fee?  Or have the staff to fill out the application?

2.  There were a lot of condo conversions in the Phoenix area in the past 4 years.  Many of those did not sell out 100% so they are renting the remaining unsold units.  The new FHA guidelines will prevent these complexes from getting approval if more than 10% of the units are being leased.

3.  These same condo conversions were purchased mainly from investors.  This tips the balance toward rental units versus owner-occupied units, thus preventing FHA condo project approval.

4.  There are a lot of foreclosure & bank-owned condos in the Phoenix area.  That means HOA dues are not being paid.  The new FHA guidelines will prohibit approval of a condo complex if 15% of the units are behind in HOA payments.

5.  After October 1st, 2009, all condo projects (unless approved since October 1, 2008) must be approved from scratch.  This means the condo project’s HOA reserves and budget must be reviewed by an FHA employee.  How many condo projects are there across the country?  How long will that take?  Months?  Years?  In the meantime, buyers cannot use FHA financing until approval.  And then the condo project must re-apply for approval every two years henceforth.

There is little to get excited about these new regulations.

Check out this handy one-pager that gives you seven reasons to buy today. This is valuable information, from tax implications to interest rate increases. Click here.

Also, have a look at this article about the family that had to make 15 offers on homes before they were able to get just the one they wanted in the Phoenix market!

FHA financing for condominium projects is about to come to a complete standstill on October 1, 2009.  That’s when HUD and FHA will apply new federal guidelines as announced in the HUD Mortgagee Letter 2009-19.

But what does that mean?  Basically, you cannot get an FHA loan on a condominium after October 1 unless FHA approved the condominium project within the past year.  FHA approves condo projects for financing if they meet certain conditions (e.g., livable conditions, HOA solvency, low % of investors, high % of owner-occupied units).

October 1 is the big deadline.

All current condominium project approvals will be invalid on that date and all projects must be re-approved under the new options available.   Going forward, all projects will also require recertification every two years.

A one-time “spot approval” process for previously unapproved condominium projects is also eliminated.

Getting projects back on the approved list will be a long and slow process.  And until a project is approved, FHA financing is not an option.

If you want more nitty-gritty details, please download this two-page document that my colleague Leif Swanson put together.

So, what does this mean if you are selling a condo? Basically, if you want a chance to sell to FHA buyers, you need to sell right now, before October 1st.

So, what does this mean if you are buying a condo? You can still purchase before October 1st.  But you just need to be certain the condo you buy is currently approved by FHA or can qualify for a spot approval.  Does it have a high number of rentals?  Was it a condo conversion after about 2005?  Is it now renting out unsold units?

If so, you’ll need to get an offer accepted by late August.  If no, you’ll need to consider conventional financing.  Well, at least you have the $8,000 tax credit on your side!

Talk with your REALTOR® and mortgage broker about your options.

My broker, John Hall & Associates helps its agents, like me, get the broadest reach possible on your listings.

I just uploaded Internet Marketing Sites that shows most of the places where your property will show, if listed with me.

This way, people thinking of moving to AZ can go to their local television affiliate site, for instance, in some other state to see your property.

Yeah. It’s a perk of working with me.

The number of short sales in Phoenix has gone up, relative to the number of foreclosures. But that is because the number of foreclosures has gone down while the number of short sales stays relatively the same.

Source: www.cromfordreport.com

But what, exactly, is a short sale? Basically, it is when a bank gives you permission to sell your home for whatever you can get and you walk away from the home with (some think) less of a hit on your credit than you would get with a foreclosure. See a more formal definition here.

Problem: that is not necessarily true. You can take a large hit on your credit score and the bank may still come after you for the balance between what you owe on the house and what you sold the house for.

The problem for buyers is time. If you are looking at a short sale as a purchase, you are looking at a house where two things have happened. 1) A listing agent and owner have set the price in order to attract buyers. 2) The bank may not necessarily have already approved that price.

So, you will wait for possibly months while the bank decides whether they like that price and the rest of the market passes you buy. If you have that kind of time to risk, then short sales can be a great option. Otherwise, they are an increased risk.

Check out the article here for more information. Or give me a call.