FHA Loan for a Condo
Home buyers may consider using an FHA loan for a condo purchase if both the borrower and the condo meet the minimum requirements set by FHA guidelines.
Can You Buy a Condo with an FHA Loan?
FHA loans can be used to purchase a condo if the borrower and also the condo meet the minimum standards set forth by HUD.
FHA Loan for a Condo Requirements
The borrower qualification requirements to purchase a condo are the same as a single family residence. However, the condo itself must also be approved for an FHA loan.
Borrower Requirements for a Condo
The standard requirements for an FHA approval to purchase a condo are as follows:
- Credit score of at least 500
- Down payment of 3.5-10%
- Two year work history
- Fully document your income
- Maximum debt to income ratio of 56.9%
In addition to these basic FHA requirements, you also cannot have any recent late mortgage payments on an existing or prior mortgage. The condo that you are buying must be used as your primary residence for at least the first year after the purchase.
If you have a recent bankruptcy, it may disqualify you from purchasing a condo. Please read our guidelines on applying for an FHA loan with a bankruptcy.
Qualifying to Buy a Condo with an FHA Loan
Qualifying to purchase a condo with an FHA loan is the same as buying a single family home. However, you may find that your pre-approval could be lower for a condo than a single family home.
One of the challenges in qualifying to purchase a condo is the homeowner’s association fee (HOA). The monthly HOA fee must be included in the debt to income ratio calculation. It is part of your housing expense just like taxes and insurance. As a result, it will lower the total loan amount that you potentially can qualify for.
In some instances, the HOA for a condo can be $300-$500 per month. That can reduce your buying power by $100k-$200k depending upon where prevailing interest rates are at that moment.
What does this mean? If possible, look for condos that have low HOA fees. If you are struggling to qualify for a loan amount that is high enough to purchase the condo that you love, then consider using a co-signer. Read our article on FHA loans with a co-signer to see how that will work.
FHA Section 234(c) Condo Mortgage
FHA provided insurance for mortgages to those who are purchasing a condominium. A condo is considered to be a project where the buyer owns their particular dwelling, but the common areas are a shared ownership by all owners within the condo project.
The condos can be attached, separated, or in a single building with an elevator.
The FHA section 234(c) mortgage is simply the condo version of the FHA 203(b) mortgage. The difference is there are specific requirements that condominiums must meet to be FHA approved. These requirements provide lenders with the comfort knowing the FHA is backing the loan.
Read more about FHA condo approval requirements.
How to Get an FHA Pre-Approval to Purchase a Condo
If you are looking to get pre-approved to purchase a condo, the first thing to do is assess your financial and credit situation. Do you have a source of income that can be verified and enough to qualify for a mortgage? Do you have a down payment? What are your credit scores and do you think they need to be improved?
Next, contact a loan officer who is experienced in working with clients who are applying for an FHA loan. Understanding how FHA guidelines on condos is also very important.
Your loan officer will ask you to complete an application. Once you have finished, they will pull your credit and then run your scenario through the automated underwriting system to see whether you qualify. Your loan officer can adjust the scenario until an approval is achieved, or can let you know what may be needed to secure the approval.
To speak with an experienced loan officer about your pre-approval, just complete this short form.
Case Study – FHA loan for a condo
We recently had a customer who was trying to purchase a condo in Florida. When adding up all of the monthly expenses on her credit report, plus the taxes, insurance and HOA for the condo, her DTI was too high.
It was the HOA and other payments on the credit report which was creating the DTI issue. The plan we put together was to have he pay off two of her credit cards. This would remove the minimum monthly payments of $250 per month. The money she spent to pay off the cards was supposed to be used towards closing costs. We offered to cover her closing costs in exchange for a slightly higher rate which ultimately resulted in her securing an approval.
Pros and Cons of Buying a Condo
Everyone has their preferences which is why there are so many different types of homes to buy and in various locations. Understand the pros and cons of buying a condo and then make the right choice for yourself.
Pros of Buying a Condo
- Very little interior maintenance
- No yard work
- No roof or siding repairs
- Social atmosphere
- Common areas which may include a pool, gym, etc
Cons of Buying a Condo
- Homeowner’s association fee
- Homeowner’s association rules
- Noise from neighbors
- Limited parking or garage space
- Harder to sell
If you would like to speak with someone about buying a condo, simply contact us and we will help.
Eric Jeanette – “Buying a condo with an FHA loan will allow first time home buyers to purchase with just 3.5% down.”
Gustan Cho – “Many homeowner’s choose to buy a condo because they do not want the maintenance that comes with owning a single family home.”
Why Would a Condo Not be FHA Approved?
FHA guidelines have specific condo requirements which means not all condos for sale can be financed with an FHA loan. Some condos do not meet those requirements or fail to be approved because of one or more issues.
These are just a few examples of why a condo many not be FHA approved:
- Too many of the other condos are being rented and not occupied by the owner
- The condo HOA dues are past due
- The condo association does not have money enough in their reserve account
- The condo association does not have enough insurance coverage
There are times when you may be able to get a condo project approved for FHA. However, it may take some time which means you could miss out on the buying opportunity.
We are seeing more condo projects falling out of FHA compliance over the past few years due to an increase in investor purchases.
FHA condo lookup
If you are interested in purchasing a condo with an FHA loan, use this FHA condo lookup tool to determine whether it is currently FHA approved.
FAQ – FHA Loans for Condos
Are there different FHA loan limits for condos?