For this issue’s Ask a Lender Column, Drew Boland, vice president of mortgage lending for Guaranteed Rate, answers questions posed by Chicagoland Realtors.
Q: We have seen a lot more first-time buyers going FHA in this market. Is that because the conventional lenders require at least 10 percent down? Does a buyer have any options for buying a condo that is not FHA approved with less than 10 percent down?
A: There has been an influx in FHA loan applications over the last 12 months. There are a couple of different reasons for this. The first is exactly what you suspected: low down-payment requirements. Because the days of doing 100 percent financing are more or less extinct, many buyers have turned to FHA programs to minimize their required down payment. That does not mean that a buyer must have 10 percent down in order to get a conventional mortgage. The majority of lenders will allow for 95 percent financing with mortgage insurance. The catch is getting a mortgage insurance provider that will insure up to 95 percent; most mortgage insurance providers cap their coverage at 90 percent loan to value on condos. It is important to note though that different lenders have different mortgage insurance providers. This is another reason why it is important to talk to a couple of lenders to make sure you are getting the best deal in the market. Guaranteed Rate, for example, has programs that allow for conventional financing with only 5 percent down on condos in Chicago. This is really beneficial for borrowers with lower down payments who wish to purchase in a building that is not FHA approved. There are a few other reasons for using FHA besides low down-payment requirements, namely lenient credit and income requirements. Buyers should always talk with their lender before writing a contract to determine the financing that is best suited for them.
Q: If my client wants to get an FHA loan, does the condo building have to be FHA approved? If it is not already approved, is it even possible for them to utilize FHA?
A: That is a great question. Currently the answer is no, the building does not have to be FHA approved prior to closing. As long as it is an existing building that is controlled by a condo association, it may be eligible for FHA spot approval. A spot approval allows for an individual buyer to get FHA financing on a specific unit in a building. However, as of Oct. 1, 2009, FHA guidelines will change and require a full approval on a condo building in order to get FHA financing.
Drew Boland is vice president of Mortgage Lending at Guaranteed Rate. He has over six years of experience in the mortgage industry and works with many of the top agents in the city. Boland has been with Guaranteed Rate for over four years and is a member of their President’s Club. He can be reached at 773.290.0583 or by e-mail at email@example.com.