FHA Approved Condo Requirements

Is this condo approved by the FHA?

FHA approved condo complesIn order to be approved for a mortgage from the Federal Housing Administration (FHA), condo units must meet certain requirements.

These requirements, which vary by state, include compliance with health and safety regulations, including fire codes.

Additionally, condos must have a minimum floor area ratio (FAR), which is the square footage of each unit divided by the number of units in the building.

FHA Approved Condominiums

A condominium is a privately owned apartment inside a bigger complex including other privately owned flats. Typically, condo owners pay condo association fees for shared common amenities such as garages, pools, outside halls, gyms, and clubhouses. You may purchase a condominium with a conventional or government-backed mortgage.

The U.S. Department of Housing and Urban Development (HUD) stipulates that FHA-approved condominiums must adhere to particular guidelines for borrowers to qualify for an FHA loan. To qualify, a condominium complex must provide:

  • Evidence of adequate insurance coverage.
  • Financials to demonstrate budget management.
  • The status of any pending litigation
  • The state of the residence

FHA Condo Approval

The Federal Housing Administration will back the lenders' mortgage for the purchase of a condominium if the unit is located in an FHA-approved condominium development.

In light of the fact that FHA-insured loans account for about 25 percent of all home mortgage loans processed in the United States, it follows that a unit in an FHA-approved development would appeal to a bigger pool of prospective purchasers. Increasing the pool of possible purchasers for a condo community's units is a sufficient reason for an association to pursue FHA clearance.

Additionally, there are condo purchasers who will only examine communities with FHA approval, even if an FHA-insured loan is not required for their purchase. This buyer's plan is to utilize FHA clearance as a type of litmus test to see if the condo has fundamentally desirable qualities.

How to Find FHA-Approved Condos

Woman holding an approved stampIf you have your heart set on a condo and an FHA loan in particular, it's simple to check the condo's status online. The HUD manages the FHA loan program and publishes a list of FHA-approved condominiums to assist in locating nearby eligible condominiums.
 
The list will not contain FHA-approved condominiums for sale in your area. Instead, it is a database of condominiums currently authorized by HUD and eligible for FHA financing.
 
To search for a condo of interest, click on this link.

The Status part is the most critical to complete since it may change the outcome of your search. The many options might assist you in identifying distinct properties in your neighborhood and determining how to make them work in your advantage. The choices are as follows:

- Approved: This displays all condominiums in your region that are qualified. These are the ones that will almost certainly face the greatest competition.

- Rejected: These condominiums may still be presented for approval as a single unit. With documentation, you'll need the assistance of your lender. Frequently, the problem may be rectified, allowing the property to qualify.

- Expired: If it hasn't been recertified in three years, it will expire and will have to go through the whole review procedure again.

- Authorized but withdrawn: These were originally approved but were withdrawn for whatever reason.

How to Buy an FHA-Approved Condo

Condos are often purchased by first-time purchasers and retirees because they provide a good medium between renting and house ownership. Each monthly payment increases the homeowner's equity, while the monthly condo association fees cover the majority of outside care.
 
In many locations, condos also cost less than single-family houses, making them a more reasonable alternative for first-time purchasers.
 
The minimum FHA mortgage standards for condominiums are identical to those for single-family residences. You need the following:

  • A down payment of 3.5 percent
  • A credit score of at least 580
  • A debt-to-income (DTI) ratio of less than 43 percent 
  • Don't forget the monthly condo fees 

On average, monthly condo association fees range from $100 to $700 per month. The costs support building upkeep and communal spaces, in addition to personnel compensation (i.e., doorman, landscaper, handyman, etc.).

Condominium developments may also impose special assessment fees for significant renovations, such as elevator repairs or a new roof after a big storm.

As you assess the purchase of an FHA-approved apartment, consider if you can afford the monthly costs.


What happens if a condo is not FHA approved?

Even though the project is not presently FHA-approved, more recent FHA condo approval rules make it feasible to get an FHA loan for a single condo unit.
 
The FHA examines six elements for this form of FHA spot approval:

  • The condominium must be inhabitable.
  • Not eligible are units that are planned or under construction.
  • The project must have at least five apartments in total.
  • Manufactured homes are prohibited.
  • Approval is restricted to units in FHA-approved prefabricated home condominium complexes.

The FHA limits the number of units that are eligible for FHA financing.   
 
This is known as the FHA concentration maximum. FHA loans may fund no more than 10 percent of the units in a project with at least 10 units. For developments with less than 10 units, the FHA will only insure two units.
 
For approval, your lender must submit a HUD questionnaire. HUD will analyze the application to decide whether or not the unit qualifies for FHA financing.

What Is FHA Single-Unit Approval (spot approval)?

A single-unit approval is when a lender initiates a single unit for an FHA loan. This kind of approval is often referred to as a spot approval or spot loan. The decision to provide authorization for a single unit is made on a case-by-case basis.

To guarantee that each individual unit is up to par with the requirements of the FHA, the borrower is required to have an FHA appraisal performed and to recertify their eligibility every three years. In addition, the whole community must adhere to some fundamental rules.
 
It is possible that you will be needed to have a down payment of at least 10% in order to be approved for a single-unit property in some circumstances, such as when the loan is manually underwritten.

How Does the FHA Approval Process Work?

Young couple decorating their new condoThe HUD Review and Approval Process, abbreviated as HRAP, or the Direct Endorsement Lender Review and Approval Process, abbreviated as DELRAP, is the procedure that condominium communities that want approval need to go through.

The timetable for approval is variable depending on the initial structure. The approval process could take a little bit longer for older houses that have a lot of unique characteristics.

The property will be assigned a condo ID and submission number as soon as the community is accepted via either HRAP or DELRAP. It is now possible to identify the community as a community that is able to take loans insured by the FHA.

Requirements for FHA condo approval

Not every condominium development is FHA-approved. Some condo complexes do not apply for FHA approval. If your condominium complex is not already FHA-approved, the following is a summary of the major conditions it must achieve to become FHA-approved:

To be approved by the FHA, a condominium complex must adhere to the following FHA requirements:

  • At least 85% of the condominium units must be current on their condominium dues.
  • No more than 35% of the site can be used for commercial purposes.
    Condominium developments that are still in the construction phase will be ineligible.
  • Every three years, the condominium project must be re-certified to verify that it continues to fulfill all applicable standards.
  • FHA can cover up to half of the units in communities with at least 10 units.
  • For communities with less than 10 units, the FHA will only cover loans for two units.
  • Hazard, flood, liability, and other insurance needed by state law and HUD must be carried on the property and units.
  • No more than 10% of the total units can be owned by one investor
  • No more than 15% of units may be 60+ days behind on HOA dues.
  • Only 50% of the condo units can be owned by investors or rented out.
  • The condo must be adequately insured and have a cash reserve equal to at least 10% of the HOA budget.
  • The property must be finished in its entirety.

FHA Condo Project Approval Guide

The FHA offers a Condominium Project Approval and Processing Guide that was produced for the final time in 2011. In addition, it includes Guide updates made since 2011. There are varying criteria for condominium communities with particular features such as tailored live-work initiatives, converted or restored buildings, and new development.
 
FHA authorization or certification ends three years after a condo development moves to FHA's list.
 
However, a condominium may re-certify for an additional two years by filing a request that confirms the community continues to fulfill the approved criteria. Re-certifying is intended to require far less documentation than receiving initial FHA clearance.
 
The association, its manager, or its attorney can file for an FHA approval extension.
 
FHA loans are popular among mortgage borrowers for a variety of reasons. A FHA loan may require a smaller down payment and accept borrowers with weaker credit ratings than conventional loans.

FHA loans may also be taken upon the sale of a condominium. In a context of increasing mortgage rates, assumable loans might increase the marketability of a condominium. Condominium associations that lack FHA certification should strongly consider acquiring it.

Often asked question

Q. Why does an FHA loan for a condo have to be approved?
A. Since the FHA backs an FHA mortgage, they want to make sure that the community and the unit will keep their value and comply with FHA rules and requirements.

Conclusion

In conclusion, an FHA loan may be the best option for you when purchasing a condo. They are known for their low interest rates and relaxed credit requirements. If you are interested in learning more about FHA loans or would like to apply, contact your local lender today.