4 minute read
Are You Maximizing Your Community's Home Values?
By Mike Kirkland, MLO, CPA
Community association boards have a fiduciary duty to preserve and enhance property values in their associations. This may include taking steps to make homes financially attractive to potential buyers. There is a myriad of ways to finance and refinance condominiums including a long list of conventional mortgage options. Perhaps less familiar are programs initiated by the U.S. Department of Housing and Urban Development (HUD), U.S. Department of Veterans Affairs (VA), and other targeted programs that all have unique attributes that are attractive to home buyers.
HUD’s Federal Housing Administration (FHA) programs provide some desirable features for potential buyers or those looking to refinance but require the community to obtain FHA approval and become certified. Some of the useful benefits of FHA approval include a federal guarantee, reduced
down-payment options and the only government insured Home Equity Conversion Mortgage (HECM) program allowing qualified condominium unit owners to obtain a reverse mortgage.
Unfortunately, very few condominium developments in the Coachella
Valley have FHA approval. This situation has resulted in the inability of sellers, buyers or those wishing to refinance from taking advantage of the FHA benefits. The magnitude of the problem is grave and impacts home values throughout the Valley. Of the estimated 500 Coachella Valley associations that govern condominium
complexes, only 18 are presently approved for FHA transactions. We see a mix of circumstances that include communities that once had FHA certification but have let it expire, communities that applied and were rejected, and many communities that have never applied.
Roughly 20 percent of those seeking new homes or to refinance would prefer FHA products over conventional options and if your community is interested in attracting first-time home buyers or retirees, FHA certification would make your community even more attractive. When it comes to selling a condominium
that has FHA approval, you can expect more offers and faster sales. Homes in FHA approved complexes take less time on the market and generate higher sales prices due to increased competition and demand. This means higher property values for everyone.
There are also very positive attributes associated with refinancing homes in FHA approved communities. These include less stringent credit requirements and higher loan to value ratios that are particularly attractive to retirees and first-time home buyers.
Another benefit of having FHA certification is that homeowners can take advantage of a Home Equity Conversion Mortgage (HECM), the FHA’s reverse mortgage program. A HECM loan enables the homeowner to withdraw equity in their home. This is obviously very attractive to seniors. Here in the Valley, we see many baby boomers wanting to change
their present living conditions to prepare for retirement. Many live in homes that are less than optimal. Weather, distance to family, availability of health facilities, and distance to recreation are just a few motivators driving seniors to relocate.
Retirees may have limited access to new mortgage financing. To qualify for a traditional loan, the applicant must have an income stream sufficient to demonstrate repayment of the debt. Most seniors are retired and no longer have the cash flow to qualify for traditional financing. This is where the HECM or reverse mortgage has an advantage. Potential buyers may be able to use a reverse mortgage to acquire a home or use their equity to stay in their present home. The HECM may be the most significant FHA benefit for our aging population because senior citizens are selling their homes in other areas and moving to the Coachella Valley in record numbers.
Clearly, with only 18 of our associations presently approved by the FHA, a significant number of potential buyers are forced to go elsewhere to purchase homes. Obviously, this has a negative impact on home values, especially in uncertified communities.
Fortunately, FHA certification is becoming simpler and less expensive. HUD is expected to release new rules soon that could speed up the approval process. The cost of gaining FHA approval has seen a drastic reduction since 2010. Many HOA law firms will oversee certification for $2,500 to $5,000. There are also organizations that offer certification services for $1,000 or less. If a board is interested in taking on the approval process themselves, the Palm Springs Regional Association of Realtors (PSRAR) offers free classes. The cost of gaining and maintaining FHA certification should be in every condominium association’s budget.
In addition to the financial benefits that come with FHA certification, boards can consider this additional benefit - certification is a signal that the board cares about the community and is working to make it thrive. Applying for and maintaining
FHA approval truly stabilizes and increases property values for residents. Don’t miss this easily achievable opportunity to enhance your condominium community.
For more information concerning FHA eligibility, go to: www.hud.go/sites/ documents/11-22MLGUIDE. PDF.
For a schedule of condominium developments that are FHA approved go to: www.https:/entp.hud.gov/ idapp/html/condolook.cfm
Mike Kirkland is a mortgage loan originator (MLO) and retired CPA who specializes in reverse mortgages in the Coachella Valley and Inland Empire. He is associated with Home Financing, Inc., a mortgage broker located in Laguna Hills. Mike can be reached at (909) 273-5556 or by email at jmkirkland1@gmail.com.
