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FHA condo buyers: Beware of the lifestyle enhancement fee

FHA condo buyers: Beware of the lifestyle enhancement fee

Buyers looking to take advantage of current low interest rates, looking for an escape from escalating rents, and in search of a personal income tax write off – beware of the barriers you may face when choosing a home to purchase.

These barriers to buying currently come in a number of forms and carry a range of monetary consequences. Let’s take a closer look at the most common barriers buyers may encounter when pursuing a home purchase today.

FHA approval: If you are one of the countless number of people attracted to the low down payment (3.5 percent) option available to qualified buyers through the Federal Housing Administration (FHA) home loan program, beware of falling in love with a condominium you cannot buy.

Yes, using an FHA loan requires that the condominium you are buying is in a tract approved by the FHA. The FHA approval status is kept up to date on the U. S. Department of Housing and Urban Development FHA Approved Condominium website.

You need to know the name of the condominium development and the city or ZIP code to retrieve the status from the web site. And no, the FHA condo approval web site is not available on weekends.

This is not always immediately available from the home listing information. Your best bet is to work with your Realtor to figure this out.

Life Style Enhancement Fee: None of the condominiums in Ladera Ranch are FHA approved because the mandatory Life Style Enhancement Fee, paid every time a Ladera Ranch property is sold, does not meet FHA guidelines.

What is this Lifestyle Enhancement Fee, you are no doubt wondering.

In Ladera Ranch, it amounts to one quarter of 1 percent of the purchase price of the property paid to the master HOA every time a property is sold. The buyer is usually the one asked to pay this fee, so add on .0025 percent of the purchase price you’re paying to your closing costs.

For a $ 650,000 home that would cost you $ 1,625. Is this fee tax deductible? Ask your tax professional.

And yes, the Ladera Ranch people know this is a problem.

Auction Premium: If you’ve got your sights set on buying a home sold through an auction, read the fine print. You may be asked to make as much as a 3 percent initial deposit, which on a $ 650,000 purchase would be $ 19,500.

This, for an FHA buyer, is essentially your entire down payment demanded up front. And you may be asked to pay a 5 percent Auction Fee for the privilege of participating and purchasing your home through the auction. That would be an additional $ 32,500 on a $ 650,000 purchase. How does that make you feel?

Buyers beware of these barriers.

Leslie Sargent Eskildsen is an Orange County real estate agent. She can be reached at 949-678-3373 or leslie@leslieeskildsen.com. Her website is leslieeskildsen.com.

The Orange County Register – News Headlines : Real Estate News