What You Should Know About FHA Approved Condos

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 condo compared to a conventional home loan. An FHA loan is a mortgage insured by the FHA and issued by an FHA-approved mortgage 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 do FHA approved condo loans work?

FHA approved condo 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.

There are some restrictions for FHA condo loans. 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 condo FHA loan approved. Here are the FHA condo 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.

Requirements for FHA Condo Approval

To qualify for an FHA approved condo 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 a Direct Mortgage Lender today!