FHA Home Loans and HOA Agreements
FHA home loans are available for nearly every type of home that can be classified and taxed as real property or real estate. That includes property that is governed by HOA agreements.
Borrowers who want FHA condo loans, or who buy homes in neighborhoods that have homeowner associations may be required to sign agreements for maintenance of common areas, agreements not to radically alter the exterior aesthetics of the home, or other covenants.
FHA loan rules have very few restrictions on HOAs except in one very important area. A borrower cannot have an FHA home loan approved for any property that features restrictions on how the borrower may sell or transfer the home purchased with an FHA mortgage.
One such agreement that is found in some HOA paperwork is known as the Right of First Refusal, which requires the borrower to submit any sale to the HOA for approval. FHA loan rules do not permit this and the clause must either be nullified for the FHA borrower or struck from the requirements altogether.
State law, lender standards, and other requirements could affect how such a transaction proceeds.
Since FHA loan rules are mostly silent on other provisions of such agreements, borrowers should ask the loan officer what other issues might negatively affect the loan application for a home that requires the borrower to sign legally binding agreements with the HOA.
Some of the most important things a borrower should know about homeowner association agreements? You must read the documentation very carefully as outdoor smoking, renting or subletting your home, or even putting out a For Sale sign on the front lawn may be restricted or forbidden under the terms of your legally binding agreement.
Borrowers who are late or miss HOA payments (yes, there may be payments or dues required) may find the terms of the HOA agreement add high fees or penalties, or even force the homeowner into foreclosure depending on the terms of the documents you sign.
Do not be taken by surprise with such rules; it’s easy to skim an HOA and sign without fully understanding the nature of the agreement you have entered into. It may be well worth the time and expense to have a lawyer with real estate law expertise review the agreements you are required to sign to insure you aren’t being roped into an unfair arrangement.
How unfair? One that prevents you from putting up holiday decorations, renting out unused living units in your home to others, or even having pets. And yes, there are horror stories about many of those types of HOA restrictions in some housing markets.
As an FHA borrower you won’t have any recourse if you sign a legally binding HOA contract or covenants that don’t violate the FHA loan rules but have other restrictive clauses that impede your enjoyment of your new home.
As always, state law, federal law, lender requirements, and other rules may apply in these cases-ask your loan officer if you aren’t sure how HOA issues can affect your transaction.
Do What You Can to Avoid Foreclosure
Homes Financed With FHA Loans Must Be Owner Occupied
FHA Programs for First-Time Homebuyers
Do you know what's on your credit report?
Learn what your score means.