See what mortgage you qualify for
If you qualify for an FHA loan, but you can’t find or don’t want a traditional house, you could opt for a condominium. Like houses, condos need to be approved by the Federal Housing Administration (FHA) before they’re added to the official list of FHA-approved properties. This means you’ll need to pick from available FHA-approved condos if you want to finance your property through the FHA.
In this guide, you’ll learn how FHA condo approval works and what you can do to qualify for an FHA loan.
What Are FHA-Approved Condos?
FHA-approved condos are condominiums that meet the Federal Housing Administration’s mortgage insurance guidelines and qualify for FHA financing. Condos can be great investment opportunities for first-time buyers. Not only can they accrue value over time and serve as a source of rental income like a traditional house, but condos are often less expensive to purchase.
To qualify for an FHA condo loan, you must choose a property from the official FHA-approved condo list. Additionally, you must have a low debt-to-income (DTI) ratio, proof of sufficient income and a credit score of at least 500. FHA loans also require paying a mortgage insurance premium (MIP).
By qualifying for an FHA loan, you can pay as little as 3.5% down, avoid the more stringent income and credit requirements of conventional loans, get reduced interest rates and have the ability to use non-occupant co-borrowers.
FHA Approval Process for Condos
The process for FHA condo approval isn’t all that time-consuming, but it does require a thorough review by the Federal Housing Administration. Typically, the owner or developer of a condominium applies for FHA approval by filling out a questionnaire and paying the necessary fee.
If the condo doesn’t meet the FHA’s requirements, the owner or developer will need to make the necessary changes before reapplying. Once the requirements have been met and the application submitted, it usually takes anywhere between 2 and 4 weeks for FHA approval. At this point, the owner or developer can have the condo added to the FHA’s list of approved condos.
Between 2009 and 2019, the FHA could only approve whole condominiums, which lengthened the approval process. In 2019, the FHA initiated Single-Unit Approval (SUA). However, Single-Unit Approvals are only possible if the entire building meets certain requirements. Generally, a condo unit is eligible for FHA approval if the building meets the following conditions:
- At least 5 units in the building
- No more than 10% of units with existing FHA loans (or up to 2 units in buildings with less than 10 units)
- At least 50% owner occupancy in the building
These are just a few of the conditions that must be met for Single-Unit Approvals. The FHA also considers various other factors, including the age of the condominium, the allocation of the condo’s budget, the percentage of commercial space and the percentage of delinquencies on homeowners association (HOA) dues.
Requirements and Restrictions for FHA-Approved Condos
The FHA sets certain requirements for borrowers to qualify for FHA loans and condominiums to qualify for FHA approval.
FHA loan approval requirements
FHA loans are designed for borrowers who want to reduce their upfront costs and don’t qualify for conventional mortgages. This means borrowers with low income, poor credit and less cash on hand can still qualify. Here are some of the basic requirements for FHA loan approval:
- Credit score: The FHA sets a minimum credit score of 500 for FHA financing. Your credit score will also affect the cost of your down payment.
- Down payment: The down payment requirements for FHA loans vary based on your credit score. If your score is between 500 and 580, you can qualify for a down payment of 10%, while borrowers with scores above 580 can pay as little as 3.5%.
- Debt-to-income (DTI) ratio: The standard maximum DTI ratio is 43%, though each application is approved on a case-by-case basis. Therefore, if you have a high enough income or a strong credit history, you could still qualify for an FHA loan with a DTI above 43%.
- Mortgage insurance requirements: With an FHA loan, you’re required to pay MIPs. These premiums are divided into the one-time upfront premium (1.75% of the loan) and the annual premium (between 0.45% and 1.05% of the outstanding loan balance).
- Residency requirements: To get an FHA loan, you must be purchasing a property to use as a primary residence. You must move into the property within 60 days of closing and live there for a minimum of 1 year.
FHA-approved condominium restrictions
The FHA also sets restrictions on which condominiums can get FHA approval. These conditions vary based on the size and age of the property. In any case, some of the most common restrictions include the following:
- Percent of units that are owner-occupied (minimum of 50%)
- Condo association requirements
- Condo dues requirements
- Commercial use restrictions (must be primarily residential in nature)
- Recertification policy (each lender must complete annual FHA recertifications)
How To Find FHA-Approved Condos
You can easily find a condo from the FHA-approved condo list by using HUD’s website. Prospective home buyers can limit searches by state, zip code, county, city, approval status and even the name of the condo building. Alternatively, you can work with a real estate agent to find FHA-approved condos.
Pros and Cons of FHA-Approved Condos
There are certain advantages and drawbacks to purchasing a condo through the FHA loan program.
FHA loan requirements are designed to help borrowers with lower credit scores and less cash on hand qualify for a mortgage.
FHA loans often have more flexible and favorable loan terms and interest rates than other mortgage options.
You can pay as little as 3.5% down with an FHA loan, as opposed to 20% with many conventional loans. These down payment requirements are particularly favorable to first-time home buyers.
While you can save on your down payment with an FHA loan, you’ll have to pay an upfront MIP and annual MIP. You should compare the added cost of your MIP to the higher down payment associated with a conventional loan to see if an FHA loan is more cost-effective.
FHA condo approval only lasts for 3 years, and condos that have been approved still need to be recertified every year.(9)
The rules on approved FHA condos reduce the number of units available for purchase with an FHA loan. This can make it much harder to find a condo that meets your personal and financial needs.
What if a Condo Isn’t FHA Approved?
If a condo isn’t FHA-approved, it doesn’t mean you’re out of luck. You could still try to purchase the property you want with a condo loan. Keep in mind that condo loans typically require extra paperwork. Alternatively, you could try to improve your finances to qualify for a conventional loan.
A Single-Unit Approval is sometimes called a “spot approval,” as this was the option available for approving single units prior to 2009. A spot approval is simply FHA approval for a single unit, as opposed to FHA approval for an entire condominium project.
You can quickly check if a condo you own, or want to own, is FHA approved by checking HUD’s website. The FHA condo list also shows if a condo’s submission has expired, been withdrawn or rejected.
Have Your Condo and FHA Finance It Too
An FHA-approved condo must go through a submission and annual recertification process to maintain FHA approval. This ensures home buyers can purchase qualifying condos with an FHA loan, guaranteeing less stringent qualifications and lower down payments. But if you don’t think an FHA loan is right for you, or you want to explore your options, be sure to check out other first-time home buyer programs.
Congressional Research Service. “FHA-Insured Home Loans: An Overview”. Retrieved December 2022 from https://crsreports.congress.gov/product/pdf/RS/RS20530
U.S. Department of Housing and Urban Development. “LET FHA LOANS HELP YOU” HUD. Retrieved December 2022 from https://www.hud.gov/buying/loans
U.S. Department of Housing and Urban Development. “FHA Condominiums | HUD.gov / U.S. Department of Housing and Urban Development.” HUD. Retrieved December 2022 from https://www.hud.gov/program_offices/housing/sfh/ins/sfh_ins_condominiums
First Home Mortgage. “FHA Single Unit Approval.” Alex Jaffe Team. Retrieved December 2022 from https://alexjaffe.com/fha-sua/
U.S. Department of Housing and Urban Development. “Section F. Borrower Qualifying Ratios Overview.” HUD. Retrieved December 2022 from https://www.hud.gov/sites/documents/4155-1_4_SECF.PDF
U.S. Department of Housing and Urban Development. “MORTGAGE INSURANCE PREMIUMS.” Retrieved December 2022 from https://www.hud.gov/sites/documents/15-01MLATCH.PDF
U.S. Department of Housing and Urban Development. “Property Ownership Requirements and Restrictions” HUD. Retrieved December 2022 from https://www.hud.gov/program_offices/housing/sfh/lender/approvals_renewals/sfh_recertification
U.S. Department of Housing and Urban Development. “FHA Annual Recertification.” HUD. Retrieved December 2022 from https://www.hud.gov/program_offices/housing/sfh/lender/approvals_renewals/sfh_recertification
U.S. Department of Housing and Urban Development. “Condominium Approval Process for Single Family Housing” HUD. Retrieved December 2022 from https://www.hud.gov/sites/documents/09-46BML.PDF