WeeklyBasis 1/8/10: FHA Condo Loan Alert: Much Less Inventory As Of February 1
Since sending the WeeklyBasis 2010 Rate Outlook this Monday (as opposed to normal Friday delivery), rates are still holding. See below for current levels as of the end of mortgage bond trading today.
Now onto the critical alert for the week: Homebuyers intending to use FHA loans to finance condo purchases should be advised that FHA condo “Spot Approvals” are going away February 1. A Spot Approval is when a lender can approve and fund a loan on a specific unit in any condo building provided the building meets certain conditions (building is 4 units or greater, 90% of units sold, 51% owner-occupied, no more than 20% commercial space, healthy condo budget, etc.).
An FHA Spot Approval is key for buyers because it means the buyer has lots of inventory to choose from. As of February 1, HUD is eliminating Spot Approvals, meaning an entire building must be approved by HUD directly or by a lender directly. Because of fraud liability and risk issues, most lenders are not approving whole buildings and deferring to the HUD-direct approval method.
This means significantly less condo inventory to choose from, at least for the next 3-6 months as more condo projects get FHA approval from HUD—a 4-8 week approval process that’s likely to get longer after February 1. For example, in all of San Francisco, there are only 27 FHA-approved condo projects currently approved.
If a homebuyer looking to buy a condo with FHA financing in the first quarter and wants to have the largest possible inventory to choose from, they should consider this HUD deadline. If they want to do a Spot Approval on a non-FHA approved building, they need to be in contract by Friday, January 29.
For post February 1 inventory evaluation purposes, use the following instructions to see which entire condo buildings are currently FHA approved by HUD:
– Go to https://entp.hud.gov/idapp/html/condlook.cfm
– For ‘Approval Method’ select ‘Pre HRAP/DELRAP’
– For City, enter city name, e.g.: ‘San Francisco’
– Leave all other fields blank
– Select ‘Send’
Affected homebuyers and condo HOAs should contact their mortgage advisors and/or Realtors with questions about how a condo building can obtain a HUD-direct approval, or to discuss how this deadline affects their plans.
CONFORMING RATES ($200,000 – $417,000) – 1 POINT
30 Year: 5.0% (5.12% APR)
FHA 30 Year: 5% (5.13% APR)
5/1 ARM: 3.875% (3.99% APR)
SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT
30 Year: 5.25% (5.36% APR)
FHA 30 Year: 5.25% (5.38% APR)
5/1 ARM: 5.25% (5.37% APR)
JUMBO RATES ($625,500 – $3,500,000) – 1 POINT
30 Year: 5.875% to 6.25% (6.02% to 6.37% APR)
5/1 ARM: 5.25% (5.43% APR)