What You Should Know About FHA Condominium Loans

What is an FHA-approved Condo? 

The Federal Housing Administration (FHA) is backed by a government entity which means that there are more restrictions in place when purchasing a home or condominium compared to a conventional home loan. An FHA loan is a mortgage insured by the FHA and issued by an FHA-approved lender. 

Therefore, an FHA-approved condo is a condominium unit or community that has been approved and has met the conditions for an FHA loan.  

Note: In the past the entire condominium community would have to be approved for an FHA loan which made buying a condominium with an FHA loan challenging. As of 2019, single condominium units can now be approved for an FHA loan, so it is a great idea to consider. 

How does the FHA Condominium Loan work? 

FHA Condominium Loans encourage lenders to provide affordable mortgage credit to borrowers seeking non-conventional home loan products. FHA loans are more lenient in requirements than conventional loans. Therefore, FHA helps low-to-moderate income families, or those who do not meet conventional loan requirements, purchase homes by keeping the overhead costs down.  

The Section 234(c) program insures a 30-year loan for a unit in a condominium building that contains at minimum, four units. 

What are the restrictions of the FHA Condominium Loan? 

There are some restrictions for an FHA Condominium Loan. If you are considering this loan product for a condominium that is not already approved, then you can go through the approval process to get the condominium FHA loan approved. Here are the FHA Condominium Loan restrictions: 

• If the apartment is in a building that was converted from rental housing, then mortgage insurance may not be provided under Section 234(c) unless: 
  • The conversion occurred more than one year prior to the application for insurance 
  • The potential buyer or co-buyer was a tenant of that rental housing 
  • The conversion of the property is sponsored by a tenant’s organization that represents most of the households in the project 

• Eighty percent of FHA mortgages in the project must be made to owner-occupants. 
• The condominium must have construction fully completed. 
• If the community has 10+ units, then 50% max can be FHA-insured units. 
• If the community has less than 10 units, a max of 2 units can be FHA-insured. 
• A minimum of 50% of all units must be occupied. 
• Max 35% of the property can be used for commercial use. 
• Required to be recertified every 3 years to assure requirements are met. 

Am I eligible to buy a condominium with an FHA loan? 

To buy a condominium with an FHA loan you must meet these minimum requirements: 

• Credit score: 500 or higher (can be higher by lender discretion) 
• Down payment: Minimum down payment of 3.5% of the purchase price of the condominium 
• Debt-to-income ratio: DTI depends on lender policy and credit score and is based on other qualifying factors but can be as high as 57% 
• Mortgage insurance: Additional costs for mortgage insurance consist of a75% upfront premium and a 0.45 – 1.05% annual fee 
• Primary residence: Must be a primary residence 

However, every situation is unique so you must work with a qualified lender to determine your accurate eligibility. Ready to get started now? Contact us today! 

What condominiums are approved for an FHA loan? 

To see what condominiums are either approved or requesting approval, use the HUD website. If the condominium you like is not approved but it meets the above criteria, consider requesting approval. 

What is a single-unit approval? 

A single-unit approval is when a single condo unit is approved by the lender for an FHA loan. This is approved on a case-by-case basis and the criteria must be met by the community. Work with your lender to get a single unit approved. 

Why is it harder to get a loan for a condo? 

A condominium project may not be FHA approved if they do not meet the restrictions and eligibility requirements. While FHA loans have more lenient borrower requirements, the condominium property requirements are stricter. To read the full rundown, visit the FHA condominium rule page. 

Prepare yourself now for your homebuying journey by reading our FREE Homebuyer Guide eBook. To learn more about condominium loans.