A little known fact in Miami is that it is still possible to buy a condo or home without any money coming out of your pocket.  Incredible, considering this is exactly what caused the current credit crisis.  So, who do we have to thank for making this possible?  Good ol' Uncle Sam.

The Federal Housing Administration (FHA) insures loans made to home buyers with as little as 3.5% down.  The program was designed to make home ownership affordable for those who didn't have enough money for a traditional down payment.  Through the FHA loan program, a local lender originates the loan, the FHA guarantees the payments, and the lender then sells your loan to an investor.  In return for the guarantee and low down payment, FHA-insured loans have a higher interest rate than conventional mortgages.  Currently, the rate for a 30yr FHA-insured loan is 1/2 percentage point higher than that for a conventional 30yr mortgage.  Current mortgage rates can be found here.

In order to ensure no money comes out of your pocket at closing when purchasing a property with an FHA loan, you need to get the seller to agree to what is known as a "sellers concession".  Sellers concessions on a purchase contract for real estate is simply a way for the buyer to roll over some or all of the closing costs into the mortgage.  Sellers concessions are determined by the lender,  and can be up to 6% of the purchase price.

Let's say you purchase a condo for $250,000.  FHA will give you a loan for $241,250 (96.5%), with your down payment being $8,750.  If you get the seller to agree to a 6% concession, they will give you $15,000 at closing.  At closing, you won't have to bring cash for a down payment and will have $6,250 to cover your closing costs.

So what's the catch?

Most condos aren't eligible for FHA financing, but there are still are some "hidden gems" out there that are -- and they are selling quickly.

Condo projects eligible for FHA loans are subject to the following guidelines:

1. There are no special assessments pending.
2. At least 90 percent of the total units in the project have been sold.
3. At least 51 percent of the total units in the project are owner-occupied.
4. No single entity owns more than 10 percent of the total units in the project.
5. General maintenance level of common elements is acceptable and there is no deferred maintenance, based on the comments by the Appraiser and/or the pictures.
6. The owners association has a reserve plan and a reserve fund, separate from the operating account, that is adequate to prevent deferred maintenance.
7. For projects consisting of over 30 units, no more than 10 percent of the total units are encumbered by FHA insured mortgages.
8. For projects consisting of 30 units or less, no more than 20 percent of the total units are encumbered by FHA insured mortgages.

Most of the FHA guidelines are identical to those published by Fannie Mae, except for the last two.  FHA will not insure mortgages on units that are in projects where too many FHA loans have already been made.  This is an important one, as it requires that we must do our due diligence before submitting an offer where the buyer will be applying for FHA financing.

Single-Family Homes are not subject to the FHA guidelines mentioned above, and the majority are eligible for FHA financing and seller concessions.

For more on FHA-insured mortgages visit the FHA homepage.

Tags: closing costs, condo projects, federal housing administration, fha loans, mortgage, sellers concessions