How to Get Your Condo FHA-Approved in 2023

How to Get FHA Approval for a Condo

An image of a town home on the streetAre you looking to buy a condo with an FHA loan? If so, you must meet the eligibility requirements and understand the process. Here's what you need to know.

The Federal Housing Administration (FHA) offers mortgage loans to borrowers with less-than-perfect credit and low down payments. FHA loans can be used to purchase a condo, but borrowers must meet some additional requirements.

This article will discuss how to get FHA approval for a condo, and we will cover the eligibility requirements, the process, and the costs.

FHA-Approved Condominiums

In 2023, to obtain FHA approval for a condominium, it is essential to note that it is a privately owned apartment within a larger complex that also contains other privately owned apartments. Condo owners are typically responsible for paying condo association fees, which cover shared standard amenities such as garages, pools, outside halls, gyms, and clubhouses.

It is possible to purchase a condominium using a conventional or government-backed mortgage. However, the U.S. Department of Housing and Urban Development (HUD) has established specific guidelines that FHA-approved condominiums must adhere to for borrowers to qualify for an FHA loan. To meet the requirements for FHA approval, a condominium complex must provide specific amenities and adhere to HUD's guidelines.

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

FHA Condo Approval

If the unit is in a condominium complex that has received FHA approval, the Federal Housing Administration will support the lenders' mortgage to purchase a condominium.

Given that around 25% of all house mortgage loans handled in the United States are FHA-insured loans, it stands to reason that a unit in a development that has received FHA approval would appeal to a broader range of potential buyers. Expanding the pool of potential buyers for the units within a condo development justifies an association's pursuit of FHA approval.

Even though an FHA-insured loan is not necessary for their purchase, there are condo buyers who will only look at developments with FHA clearance. The buyer intends to use the FHA approval as a litmus test to determine if the condo has inherently attractive features.

How to Find FHA-Approved Condos

If you have your heart set on a condo and an FHA loan, checking the condo's status online is simple. 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 to 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 most significant 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 pass, and you will have to go through the whole review procedure again.

Authorized but withdrawn: These were initially approved but were removed for whatever reason.

How to Buy an FHA-Approved Condo

First-time buyers and retirees typically purchase condominiums because they provide a suitable middle ground between renting and house ownership. While the monthly condo association fees cover the bulk of exterior maintenance, each payment grows the homeowner's equity.
Condos are a more affordable option for first-time buyers since they are often less expensive than single-family homes.
Condominiums must meet the same minimal FHA mortgage requirements as single-family homes. The following is required:

  • 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. The costs support building upkeep, communal spaces, and 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 getting an FHA loan for a single condo unit feasible.
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, and 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 ten teams. The FHA will only insure two developments with fewer than ten 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)?

When a lender requests a single unit for an FHA loan, this is known as a single-unit approval. Spot approvals and spot loans are common names for this kind of approval. Each instance determines whether to provide permission for a single unit.

The borrower is obliged to get an FHA appraisal and recertify their eligibility every three years to ensure that each unit complies with FHA regulations. The whole community must also abide by a few fundamental laws.
In certain instances, such as when the loan is personally underwritten, it is conceivable that you may require a down payment of at least 10% to be authorized for a single-unit house.

How Does the FHA Approval Process Work?

Condominium communities that want approval must follow the HUD Review and Approval Process, also known as HRAP, or the Direct Endorsement Lender Review and Approval Process, or DELRAP.

The approval process might take a while, depending on the original structure. The approval procedure could take a little longer for older homes with many distinctive features.

The community will be given a condo ID and submission number as soon as HRAP or DELRAP accepts the community. Now it is feasible to tell whether a town is eligible for FHA-insured loans.

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 significant conditions it must meet to become FHA-approved:

A condominium complex must adhere to the following FHA requirements to receive approval from the FHA:

  • At least 85% of the condominium units must be current on their dues.
  • No more than 35% of the site can be commercialized.
    Condominium developments that are still in the construction phase will be ineligible.
  • The condominium project must be recertified every three years to verify that it fulfills all applicable standards.
  • FHA can cover up to half of the units in communities with at least ten units.
  • For communities with fewer than ten units, the FHA will only cover loans for two teams.
  • Hazard, flood, liability, and other insurance needed by state law and HUD must be carried on the property and departments.
  • One investor can own no more than 10% of the total units.
  • No more than 15% of units may be 60+ days behind on HOA dues.
  • Investors can only own or rent out 50% of the condo units.
  • The condo must be adequately insured and have a cash reserve of 10% of the HOA budget.
  • The property must be finished in its entirety.

FHA Condo Project Approval Guide

A Condominium Project Approval and Processing Guide is available from the FHA and was last updated in 2011. Additionally, it incorporates guide revisions made since 2011. There are several requirements for condominium communities with specific characteristics like specialized live-work programs, converted or refurbished structures, and new construction.

Three years after a condo complex goes on the FHA's list, the FHA's permission or certification expires. However, a condominium may recertify for an extra two years by submitting a request that the neighborhood still meets the established requirements. The goal is for re-certification to involve far less paperwork than the original FHA approval.

The association, its management, or its lawyer may submit a request for an FHA approval extension. FHA loans are popular among those looking to buy a home for several reasons. An FHA loan could have a lower down payment requirement and accept applicants with less favorable credit scores than conventional loans.

Taking out an FHA loan after selling a unit is another option. Assumable loans may improve a condominium's marketability due to rising mortgage rates. Condominium associations should seriously consider obtaining FHA certification if they don't already have it.

Often Asked Question

Q. Why does an FHA loan for a condo have to be approved?

Since the FHA backs an FHA mortgage, they want to ensure that the community and the unit keep their value and comply with FHA rules and requirements.


Eligibility Requirements for FHA Condo Loans

To be eligible for an FHA condo loan, borrowers must meet the following requirements:

  • Have a credit score of at least 580
  • Make a down payment of at least 3.5%
  • Have a debt-to-income ratio of no more than 50%
  • The condo must meet FHA requirements, which include the following:
    • The apartment must be in a building that has been built within the last 50 years
    • The apartment must have a current reserve fund
    • The apartment must have a board of directors

The Process for Getting FHA Approval for a Condo

The process for getting FHA approval for a condo is similar to the process for getting FHA approval for a single-family home. The first step is to get pre-approved for a loan. Once pre-approved, you can look for condos that meet your needs and budget. Once you have found a condo you want to buy, you must submit an offer to the seller. If your offer is accepted, you must go through the closing process.

The Costs of FHA Condo Loans

The costs of FHA condo loans are similar to the costs of FHA loans for single-family homes. The most common fees associated with FHA loans include:

  • Mortgage insurance premium (MIP)
  • Origination fee
  • appraisal fee
  • title insurance
  • recording fees

If you are considering buying a condo with an FHA loan, meet the eligibility requirements and understand the process. By following these tips, you can increase your chances of getting approved for a loan and buying your dream condo.

FHA Condo Look Up