FHA Condo Loans: What You Need to Know

May 11, 2021

FHA home loans can be used to buy a number of different property types including condo units. An FHA condo loan is similar in many ways to a purchase loan for a typical suburban home, but you should know the differences in buying and owning a condo versus other property types.

FHA Condo Loan Rules

FHA loans require condos or condo units to be on or added to the FHA approved list. You can search for an approved condo project using a tool on the FHA official site or you can discuss what it takes to add the project to the FHA approval list with your lender.

Condo loans have certain considerations and not all condo projects are identical. FHA loan rules state that in some cases where condo projects have been converted from rental properties, there may be mandatory waiting periods (a year from the conversion to the loan application) and other considerations.

Individual condo units in a project not currently approved or on the FHA approved list may be considered if the individual units meet FHA requirements. Single condo unit approval hinges on the following guidelines from the FHA and HUD:

“To be eligible for Single-Unit Approval, the unit must be located in a project that is not FHA-approved, that is complete and ready for occupancy, has at least five dwelling units and it is not a manufactured home.” The project must also meet a list of other requirements, “including FHA insurance concentration, owner-occupancy percentage, and financial condition of the project.”

Condo Owner Association Issues

Any property purchased with an FHA mortgage must meet FHA standards and requirements. Condos, like some suburban neighborhoods, feature homeowner’s associations or condo owner’s associations.

The covenants and bylaws of these associations cannot restrict the borrower’s ability to freely sell or transfer the property purchased with an FHA mortgage. This is a requirement for loan approval.

Any language that would require an FHA borrower to submit the sale or transfer of their property to a third party for approval (such as a condo owner’s association) cannot be included for an FHA borrower.

The association must amend its bylaws or otherwise render them free of such a “right of first refusal” clause for the FHA borrower or the loan cannot be approved.

If you need more information on these issues, discuss your needs with a participating FHA lender.

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