We just closed an FHA loan in a San Diego condominium complex which wasn't on the FHA approved list. Once upon a time, a real estate agent might call what we did a "spot approval". Spot approvals were where the underwriter looked at the legal and financial documents, of the home owners association, along with a questionnaire, and determined whether or not the complex was eligible for an FHA loan.
There are no such things as spot approvals anymore BUT... DELRAP approvals operate (practically) the same way as a spot approval does.
FHA-eligible condominium complexes are approved, for a two year period, one of two ways:
- HUD Review and Approval Process (HRAP)-- this is where the package of the HOA's legal and financial documents are sent to the HUD Home Ownership center in Santa Ana for review and approval. This can take up to 30 days and we would need 45-60 days to close the FHA loan
- Direct Endorsement Lender Review and Approval Process (DELRAP)-- this is where the HOA's legal and financial documents are reviewed by an FHA "approved" underwriter. HUD "delegates" authority to underwriters, with a HUD certification, to approve the complex. This takes 3-4 days and we can close the FHA loan within 30 days.
Our condo review department does this for us and we have access to a HUD-approved underwriter to make the DELRAP decision on the condominium complex. We process the loan just like any other loan but delay the appraisal until one week after we receive the HOA documents needed. If we get the documents within the first 2-3 days, after opening escrow, we have no problems meeting the appraisal contingency deadline.
Documents needed include:
- By Laws
- Articles of Incorporation (or Association)
- Approved Budget
- Balance Sheet, dated within 30 days of submission
- Income Statement, dated within 30 days of submission
- Cash Flow Statement, dated within 30 days of submission
- Condo Questionnaire
- Recent reserve study (unless at least 20% of the budget is going towards reserves
If the complex WAS FHA-approved, but is now expired, we still have to submit as if it were a new submission. The two key issues which kill FHA complex approvals are:
- The owner-occupancy ration is below 50% at the time escrow was opened
- There is pending litigation
Please call us if you have questions or need us to help your borrower get an FHA loan for an unapproved condominium. While this isn't a "spot approval", the process is similar enough to the old spot approvals that it feels like one. Our number is 858-777-9751.