Four FHA Home Loan Tips for Buying a Condo
Are you interested in buying a condo unit with an FHA home loan? It’s an option some borrowers don’t realize they have--some make assumptions about the FHA home loan program and the availability of loans for condo units.
But the fact is that an FHA mortgage can be used to purchase a condo the same as any suburban home though there are some considerations to remember when making this type of purchase.
HUD Rules on Qualifying for an FHA Condo Loan
The FHA approval criteria for condos involve the qualifying terms you will find in other FHA mortgages--home loans for modular housing or mobile homes, typical suburban homes, etc.
Condo loans, like all other FHA mortgages, are open to first-time buyers AND those who have owned a home before and that is true even you have owned in the last three years. The one big difference between an FHA condo loan and the approval process for other Federal Housing Administration loans?
Condo projects require being added to an FHA-approved list or meeting the requirements to be added to it or otherwise be considered for approval. There is also the ability to qualify a single condo unit if it meets FHA requirements.
What qualifies you for an FHA condo loan for approved condos? Your financial qualifications. Your lender will not care whether or not you have owned property in the past but WILL need to know that your condo purchase is for your own use as your primary residence.
FHA mortgages are NOT need-based loans and do not have income limits or purchase price caps the way some need-based home loan programs might.
Low Down Payment Condo Loans
FHA home loans feature a 3.5% downpayment--the lowest down payment possible for the FHA loan program--and that requirement does not change based on the nature of the property. You are not required to make a higher down payment just because you want to buy a condo unit.
No Early Payoff Penalties on FHA Condo Loans
FHA loans for a unit in a condominium project cannot impose a penalty on the borrower for paying off the loan early. This is an important feature of FHA mortgages in general. Furthermore, FHA financing is not approved for a mortgage that has "right of first refusal" clauses in condo association bylaws or agreements.
You cannot be restricted from freely transferring your FHA condo loan or selling your condo to another. FHA loans for single-family homes do not permit any restrictions on your ability to sell the home.
FHA Loan FICO Score Guidelines for Condo Loans
On paper, FHA loan rules say those with FICO scores starting at 580 or better may technically qualify for an FHA loan with the lowest downpayment of 3.5%.
But your participating lender will feature bank “overlays” or additional requirements that may increase the basic FICO score minimums for loan approval. It is best to discuss this with your lender. Ask what that bank's credit score requirements are for the loan. A smart homebuyer will shop multiple lenders and compare those requirements before committing to an individual condo unit.
Disclosures Give Transparency to Borrowers
Understanding the Purpose of Your Mortgage Down Payment
Putting Money Into Your Escrow Account
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