FHA Loan for a Townhouse
FHA loans are for the purchase or refinance of a primary residence. FHA guidelines permit the financing of townhouses for both purchases, refinances and rehabilitation purchases.
What is a Townhouse?
A townhouse is a single family home that is attached to at least one other single family home on one side. Townhouses often have a front or rear yard and are part of an association where dues are required.
Can You Buy a Townhouse with an FHA Loan?
With just 3.5% down, you can use an FHA loan to purchase a townhouse if both you and the townhouse meet the basic FHA requirements.
FHA’s Difference Between a Townhouse and a Condo
There are some very specific differences between townhouses and condos. Those differences include but are not limited to the following:
Ownership – When you own a townhouse, you will own the land beneath your structure. You may also have a private yard that only you will have access to. The ownership is similar to that of a single family home in a gated community where you also are part of an association. The only difference is the townhome is almost always connected to an adjacent townhome.
With a condo, you own a share of the total property but not the land beneath your structure.
Maintenance – Maintenance for a townhouse is the sole responsibility of the owner. You would be required to maintain and repair your interior and exterior. This includes the roof, yard, driveway, siding and windows. The association would be responsible for maintaining the common areas (if any exist). Garbage collection rules may differ for each townhouse community.
Condo maintenance is different than a townhouse. With a condo, you are responsible for the interior of your home. However, all exterior elements are typically covered by the condo association. This also includes landscaping and snow removal.
Association – Each townhouse community is governed by an association. The association will have monthly or annual dues that you must pay as an owner. The association fees or dues will also vary from one community to another and will likely be driven by the size of the community and the amenities within.
Condo associations often have higher association fees than townhouses because their expense budget is higher.
Amenities – Some townhouse communities have amenities but usually not many. Condos on the other hand will often have a pool and sometimes a gym or even a golf course. Condos along the shore may have a marina where you can dock your boat.
Mortgages – The mortgage process will be similar for both a townhouse and a condo. You can apply for the same mortgage programs unless the condo is non-warrantable.
Brian of Sparkrental says, “Condominium” refers to a type of legal ownership, where the homeowner owns the interior walls and has some rights to communal features, a townhouse can be owned as a condo, or not, there are nuances of course. What sets them apart are the rules and regulations, association fees, and amenities.”
Read more about how townhomes differ from condos.
Qualifying for an FHA Loan for a Townhouse
It is possible to purchase a townhouse with FHA financing if both you and the townhouse meet the basic qualifications for an FHA loan. These are the basic qualifications for an FHA loan for a townhouse:
- Two year work history
- Minimum 500 credit score
- 3,5% down payment (10% down for credit scores under 580)
- Maximum debt to income ratio of 56.9%
- No recent bankruptcies or foreclosures
The difference when applying for an FHA loan for a townhouse is the association fees will be included in the debt to income ratio calculation. This means the higher the association fee, the less of a mortgage you will qualify for. This could also mean that you may be able to afford a more expensive home versus a townhome. It will all come down to the total taxes, insurance and association fees combined.
Do Townhomes Need to be FHA Approved?
Townhomes do not have to be FHA approved the way condos do. Townhouses are treated the same as single family residences as far as the FHA guidelines are concerned.
Do Townhouses Need to Have an FHA Inspection?
Townhouses must pass through the same FHA inspection that a single family home would. The inspection for a townhouse would make sure the home is safe and in good condition.
If the townhome does not pass inspection, the seller will need to make the repairs before the home can close. Otherwise, you can apply for the FHA 203k rehab loan which will be discussed below.
Read more about FHA inspections.
FHA 203k Rehab Loan for a Townhouse
When a townhouse for sale needs some rehab or TLC, you can apply for an FHA 203k rehab loan. With this type of FHA loan, you can borrow the funds needed to purchase the townhouse and also enough to make the updates and repairs.
This is another way to negotiate with a seller who is unwilling to make the repairs that otherwise would be required by an FHA loan. Read more about the FHA 203k rehab loan.
FHA Loan for a Townhouse – FAQ
Do you own the land if you buy a townhouse?
Owners of townhouses do own the land that their dwelling sits on.
What are the FHA rates for townhomes?
The mortgage rate offered for your FHA loan should be the same as if you were buying a single family home.
Are townhomes hared to sell?
Selling a townhome should not be difficult if it is in good condition and priced right.