FHA Approved Condos
Condominiums are often the choice for first time home buyers, people looking for a second home or vacation spot, and even for individuals who are looking for low maintenance living.
There are close to one million condominiums sold every year and although FHA loans are extremely popular and account for more than 25% of all mortgages, every condominium project must be FHA approved before being financed with an FHA insured loan
What is an FHA approved condo?
An FHA approved condo is one that meets the minimum standards to be FHA eligible set forth by the Federal Housing Administration. Effective September 1, 2019, entire condominium project no longer needs to be approved and FHA eligible before you could finance one of the units within the condominium project.
On September 1, 2019 there was a change in FHA guidelines on FHA condos which now will allow for just a single condo unit to become FHA eligible even if the entire project has yet to be approved.
Pros and Cons of Living in a Condo
Condo living has many benefits but also a few down sides. These are just a few of the pros and cons of living in, or buying a condo.
- Affordability as compared to single family homes in the same area
- Maintenance free – exterior maintenance covered by the condo association
- Additional Amenities such as a pool or fitness room are often included
- Security is often better with condos vs single family residences
- Less transient neighbors versus an apartment
- Homeowners insurance covered by the condo association
- Property taxes typically lower than a single family residence
- Monthly association fee to cover maintenance and insurance will be required
- Less privacy than a single-family residence with the potential to have noisy neighbors
- Financial stability of the condo association
- Limited ability to make exterior décor changes
- Strict rules set forth by the condo association
What makes a Condo FHA Eligible?
- The following criteria must be met before the condo project can be FHA approved or eligible.
- The condo project must be fully constructed and completed
- A maximum of 60% of the condo project can be used as retail or commercial space
- At least 25% of the units must be owner occupied and not rented
- At least 10% of the homeowner’s association dues (HOA’s) must go to a reserve account for emergencies
- A maximum of 15% of the units can be delinquent on their dues by more than 60 days
- The HOA needs to have two year’s worth of reserve funds to cover repairs
- The condo committee cannot have the ability to approve or deny potential renters
- The condo project must be fully insured
These seem like a lot of requirements but most condo projects should be able to meet all of these standards for FHA approved condos.
How to Find FHA Approved Condos
HUD has an FHA approved condo lookup tool that can be used to find FHA approved condominium projects. We mentioned earlier that you can still buy a condo now even if the entire project has not been approved by the FHA.
If you select a condo from this list of approved condominium projects, you will save time in trying to get that approval for a unit that is not part of an approved condo project.
Here is how you will use the FHA approved condo lookup tool:
First, you will see the page below when you enter the lookup tool. On this page, all you truly need to select is the state and click “send”. However, to narrow your search you can also enter the county name.
Once you click send, you will get results that look like this. It is important to check the “status” column to the right. There, you will see three options:
- Approved (expired)
Why would an application get rejected? This can be due to the condo project not meeting the requirements, but is usually a result of missing paperwork.
How to Qualify for an FHA loan on a Condo
This is what the FHA requirements are to qualify for an FHA loan on a condo.
- Minimum FICO score requirement of 500 – down payment will be 10% for scores below 580
- Minimum down payment requirement of 3.5%
- Mortgage Insurance Premium (MIP) is required for every FHA loan
- Maximum debt to income ratio of 43%. The best FHA lenders allow for up to 50%
- The home must be the primary residence
- The borrower must have a 2-year work history with steady income
Something you should consider is the monthly homeowner association fees (HOA’s) will be included in the calculation when the lender qualifies you. This means you may qualify for a smaller loan amount when buying a condo versus a single family detached home.
Before shopping for a condo, it is important to understand how much you can qualify for and whether you will meet the minimum requirements for an FHA loan. We suggest reading and understanding these four important articles on FHA loans.
FHA Lenders Who Finance Condos
What we often talk about is how some lenders choose not to offer everything that the FHA guidelines permit. For example, some lenders implement their own credit score minimum that is higher than what the FHA minimum is. Other lenders prefer not to do FHA 203k loans because of the additional paperwork required of them.
Below is a list of FHA lenders who are willing to finance your condo. Meanwhile, there are elements of each lender which may or may not apply to you. As a result, your best bet is to share what you are trying to accomplish with us and we will help you to decide which lender is best for you in your area.
Our list of the best FHA lenders for Condos:
- Carrington Mortgage Services
- Amerisave Mortgage Corporation
- Homebridge Mortgage
- Academy Mortgage
- Flagstar Bank
Will the FHA Finance a co-op?
The FHA guidelines do not permit the purchase of a co-op since the ownership situation is different than of a condo. Below we will outline the difference.
What is the Difference Between a Condo and a co-op?
With a condo, you own the unit completely. However, with a co-op you own a share in the building without true ownership of the unit itself.
The co-ops are also managed by the residents and they often have rules that are more strict and every new owner is likely going to have to pass through an approval process. As a result of these differences and ownership flaws, co-ops are not eligible for FHA financing and many lenders will not finance a co-op even with a conventional mortgage.
Finding and purchasing a condo with an FHA loan is easier today than it was in the due to the recent changes in the FHA rules on approved condos. Buyers no longer need to be concerned with whether the condo project is already approved by the Federal Housing Administration since they can now secure an approval for the unit they play to purchase.