New Financing Rules Net Ypsilanti Condo Seller Nearly $100,000
Looking out from the second story balcony over the calm, crystal clear waters of Ford Lake I knew it was a longshot. Despite the beautiful views and renovations the owner put into their condo, archaic financing rules have hampered values in condominium developments like Harbour Cove, which sits at the southern tip of Ford Lake in Ypsilanti Township.
Fortunately, for the new purchaser and owner, the financing rules for condominiums have changed over the past several months opening up new opportunities for buyers and sellers alike.
To get a better understanding of what has changed it’s important to understand what FHA (Federal Housing Agency) financing is. FHA loans are designed for low to moderate income buyers with a minimum credit score as low as 500. For borrowers with credit scores 580 and above, only 3.5% down payment is required. Higher down payments are required for lower scores. These loans can be especially appealing to first time home buyers who have low down payments and have yet to establish sufficient credit.
This type of financing has been extremely hard to get for condominium purchases. In fact, it’s estimated that only 10% of the nearly 150,000 complexes in the country are approved for FHA financing. This is on par with local numbers in Ann Arbor and Ypsilanti. Less than 2% of all FHA backed mortgages were condo purchases!
The reason is that complexes through their Home Owners Associations (HOA) have to go through an approval process every two years with the FHA. There are nearly 100 pages of guidelines that a property and borrower must meet to be approved. Previous guidelines required budgets, balance sheets, bank statements and reserve statements be sent in. They required that one entity own less than ten percent of the units and reserves be sufficient for five years of maintenance and repairs.
The problem doesn’t lie in the guidelines which were designed to protect the borrower, it lies in the ability of smaller complexes to manage the approval process. This process has now switched from every two years to every three years.
Back to Harbour Cove. With nearly forty showings and a handful of low offers the seller finally received a competitive offer with a buyer that was willing to try the new “spot approval.” With the new approval process, the FHA will look at a unit in a complex that is not on their current approval list. They will decide on a case by case basis if it meets their guidelines. The seller provided association documents and the purchaser paid for the appraisal and financial documents required for the approval.
After about ten days, the verdict was in, APPROVED! Champagne at sunset. The unit, which was purchased in 2018 for $124,900 and subsequently remodeled, sold for $217,500. The highest sale ever in the complex, which up until now, had not seen the value gains of other developments.
The new rules are not loosening the restrictions, they are just allowing more purchasers the opportunity to get into a home where they previously could not. The new guidelines have restrictions which include: limiting the number of FHA loans in a complex of less than ten units to 50%, making sure less than half the units are investor owned and for condominium projects with 10 or more units, no more than 10% of individual condo units can be FHA-insured.
It’s too early to say if this new policy will have an affect on the values of other developments in Ypsilanti and Ann Arbor, but more financing options is definitely a plus.
Dan DeCapua is an accomplished Realtor and stand up comedian. A Real Trends Top 1,000 agent in the U.S., member of the RE/MAX Hall of Fame and has the most positive reviews of any Ann Arbor based agent on Zillow. He keeps his trophies and various other accolades in a climate controlled, subterranean vault available for viewings the third Tuesday of every month. For more real estate laughs and fun click HERE. For your Metro Detroit/Greater Ann Arbor real estate needs call (734) 730-7061 or email Dan@SpotlightHomeTeam.com