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Hi. This is Daniel with DROdio Real Estate. I'm just taking some clients around today in Washington D.C. and we're coming up against a very interesting issue that I want to make you aware of especially if it's important to you to be able to get FHA financing.
00:18 If you're not sure what FHA financing is, this isn't the audio blog to tell you about it, but you can definitely search on our site for knowledge-based answers about FHA Financing. The quick and dirty on it is simply that it allows you to put a much lower down payment down, as low as 3-1/2% where as the traditional, also called conventional financing typically requires something in the neighborhood of 20%, especially right now with the way that the loan market is after 2004 -2006 excess. Lenders are being much more cautious now.
01:00 The problem is this: my clients found a condo that they were interesting in. It was a two unit condo association which I don't see very often, but they're out there. The problem was it was a developer who had rehabbed both units and was selling them. Now in order for a property to qualify for an FHA loan it must be at least 51% owner occupied. Since both these units were being rehabbed at the same time the developer owned both of them, that renders them both ineligible for FHA financing which is a shame because my clients were very interested in the units and the developer already has one of them under contract.
01:44 So you would think then if the developer already has one under contract, would it be possible to get some kind of exception so that you could still do FHA financing, and the answer if probably not. We may still attempt what's called a spot exemption from FHA, but it is unlikely just because it's under a four unit condo association. It's only two units, so that makes FHA very nervous and the fact that the other unit has not settled and been settled for at least a year which means that the budgets for the condo association is probably not accurate.
02:28 What happens is the developer at some point needs to turn the condo association over the owners and the owners then run and manage the condo association. When that happens, often times the condo fees with have to be reassessed because there might not be enough money in the budget for reserves or the building might need more maintenance than was originally expected and the government knows this. So when they're backing FHA loans, they typically require that it has been owner occupied for at least a year and that there are budgets in place and some level of certainty as to what the condo fees are so that there won't be any surprises down the road and that's not the case here.
03:13 I think the take away is if you are looking at a unit that's for sale and it looks to be a small condo association, make sure that the primary owner requirements are met and it's not a number of investment owners or developers that currently own the unit because you will have a very hard time getting FHA financing. It's worth looking into that first before you go too far down the road on the contract of the property simply because you'll just be wasting your time if you need to do FHA financing.
03:52 So I hope that was useful. Again, Daniel with DROdio Real Estate. We are happy to talk to you specifically about your buying or selling needs. If you'd like, just give us a call (800) 705-2782 or locally at (703) 888-1505 or shoot us an e-mail info at DROdio.com. Thank you.