Recenlty FHA new Condo Guidelines in ML09-19, to date I have not found specific guidelines as to the guidelines that FHA requires in order for a Condo to be approved for FHA Financing.
Below you will find the guidelines from FannieMae and FreddieMac. In the past some Condo's have had issues with underfunding of reserves and this appears to be efforts to protect future buyers from buying into Condo's that are not funding their reserve accounts.
What would you think if the Government required buyers to acknowledge a Condo's Reserve Study as part of any contract? Or do potential buyers want to ask for this prior to their offer?
In FNMA SELLING GUIDE https://www.efanniemae.com/sf/guides/ssg/ Dated 4/1/2009 it says
"Lenders must review the homeowners' association projected budget to determine that:
• it is adequate (i.e., it includes allocations for line items pertinent to the type of condo),
• it provides for the funding of replacement reserves for capital expenditures and deferred maintenance at least 10% of the budget, and
• it provides adequate funding for insurance deductible amounts.
Note: Increased insurance costs have resulted in associations increasing their insurance deductible mounts to reduce annual premiums. Insurance deductibles can be quite substantial. Fannie Mae does not require a separate budget line item for insurance deductibles, but the potential cost of deductibles must be accounted for in the budget. Insurance deductibles may be included in the reserve fund or may be a separate item. In either case, the lender must determine that the project has the ability to fund insurance deductibles.
FreddieMac says http://www.freddiemac.com/learn/pdfs/uw/condo.pdf 04/2009
Additional Requirements
• Project budget - Budget is consistent with the nature of the project and appropriate assessments are established to manage the project:
- Appropriate allocations - for line items pertinent to the type and status of the project
- Operating budget - at least 10% of the budget provides funding for replacement reserves for capital expenditures, deferred maintenance and replacement cost of major common elements.
- Adequate funding - for insurance deductible amounts
Another souce says
" The project's operating budget must be consistent with the nature of the project and must provide for adequate replacement reserves based on the project's age and remaining life and on the quality and replacement cost of the major common element components"
