FHA APPROVED CONDOS
What is it?
An FHA Loan is a mortgage that’s insured by the Federal Housing Administration. They allow borrowers to finance homes with down payments as low as 3.5% and are especially popular with first-time homebuyers.
FHA approved condo loans are specifically geared toward those who purchase housing units in a condominium building. Condominium ownership, in which separate owners of individual units jointly own the development’s common areas and facilities, is for some a very popular alternative to home ownership.
FHA Approved Condo Product Options
- No more than 50% of the units can be investor-owned / rentals.
- No more than 50% of the property can be used as commercial space
- No more than 15% of units can be delinquent in their HOA assessments for more than 60 days
- No more than 50% concentration of FHA Loans within the community
- Properties with more than 20 units, no single investor, entity, or related party may own more than 10% of the units within the project.
- Properties with 20 units or less, no individual owner, entity, or related party may own more than one unit.
- Reserve requirements may apply
- Insurance requirements may apply
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FHA Condo Loans are specifically geared toward those who purchase housing units in a condominium building. Condominium ownership, in which separate owners of individual units jointly own the development’s common areas and facilities, is for some a very popular alternative to homeownership. An FHA Condo Loan is for financing a condo that meets FHA guidelines.
In today’s market, with rising home prices, condos are gaining more traction, due to the fact that condos usually are less expensive than single-family homes.
FHA approval requirements for condos
Before you begin the process of buying a FHA approved condo, it is important to know what condos need in order to qualify:
- The condo property or project must be completed. If a project is still in the process of being built, it won’t qualify.
- No more than 50 percent of units can be used as rentals or be investor-owned. This means you have to buy the unit and actually live in it.
- The property must be insured and the condo association must keep at least 10 percent of the HOA budget in a cash reserve.
- No more than 35 percent of the property can be for commercial use.
There are other restrictions, such as forbidding FHA loans for units in condotels (condos that have many hotel-like amenities and which rent units to vacationers) or for condos in undesirable areas, such as close to a landfill or airport.
What is the process of getting a condo FHA-approved?
Condos that are looking to accept buyers borrowing an FHA loan have to go through an approval process and get recertified every three years to remain eligible for FHA loans. Under the new rules, individual condo units can be eligible for FHA loans even if the full development isn’t FHA-approved. This type of single-unit approval is called spot approval.
The approval process varies depending on the original structure requesting approval. For instance, older buildings might have a longer approval process than new projects.
Condo developments looking to get approved need to complete the HUD Review and Approval Process (HRAP) or Direct Endorsement Lender Review and Approval Process (DELRAP) for lenders. Once a condo is approved through HRAP or DELRAP, it’ll receive a condo ID used for the project, as well as a submission number.
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