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SpinDistribute.com Article Directory

The following article was published in our article directory on September 11, 2012.
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FHA: The Sweet and the Bitter?

Article Category: Real Estate

Author Name: Charles H. Maness, MSACC

Ask the majority of real estate professionals whether a condominium association should seek FHA approval and the answer will usually be an overwhelming "Yes." Before asking whether we should be on the FHA Approved List, we should ask what are the benefits and risks of being on this list?

FHA allows buyers to buy condominium units with easier qualifications. Specifically, reduced credit requirements, low down payment requirements, and financed closing cost options are all enticing for sellers and buyers of condominiums. Easy credit, lower down payments, and less out-of-pocket costs for closing fees are amazing benefits. Add to the list, easier turnover of units for builders, sellers, and agents and you have a winning formula for disaster.

Does this sound a little like the design that led to the housing crisis? Remember the housing bubble that almost brought down the economic system of the United States and the world? Is easy credit, little owner equity, and financing incentives causing another bubble that will lead us to more tax payer foreclosure and bank bail outs?

When looking at accepting FHA, condominium associations must ask the most important question of whether the benefits outweigh the risks based on their association needs. Important questions that a condominium board and owner membership group would want to discuss includes:

What is the type of culture of the association? The culture of the association can set the difference between a successful association and a bankrupt association.
Are the financial and management resources sufficient to absorb the increased risks for FHA loans?
What are the other available sales financing options in your area?
Are those financing options practical and adequate to meet the resale needs?
What are the views of the owners on whether this is a short-term or long-term investment. For example, an association in a college community may have a short-term goal of ownership vs. an association in a retirement community may have a long-term mentality.
Overall, the decision to apply and seek FHA approval is not an immediate "Yes" decision. The association should do a benefit-risk analysis before making any decision of this size. A professional management company is a great resource to aid the association in making the right decision for their needs.

Deciding on your management company is one of the most important decisions that an association can make. Often times, the builder brings the management company to the association during the Declarant Control Period. The association should always be aware that the leadership of the association will be turned-over to an elected Board of Directors; therefore, the Declarant Control Period is a great time to see if the management company is meeting and exceeding the owner's expectations. If they are not meeting the expectations during this period, it is unlikely that they will meet them after the first Board of Directors elections The recommendation is to find a management company that offers the skill sets and philosophy that your association needs.

Keywords: accounting, real estate brokers, real estate agents, CPA, Tax Attorney, IRS Help, IRS, Real estate taxation, Taxation, Self-employment Taxes

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