What to Know About FHA Loans for Condo Units
August 28, 2024
FHA home loan options include manufactured homes and condo units, surprising some borrowers who assume FHA mortgages are only for traditional suburban houses.
You can buy a condo unit with an FHA loan, but these transactions are a bit different than those for FHA loans to buy a house in the ‘burbs.
What to Know About FHA Condo Loans
FHA loan rules in HUD 4000.1 state that the condominium project must typically be on or added to the FHA-approved list. There are exceptions.
Some condos not on that list may still be approved for an FHA mortgage if the condo and/or the project meet specific requirements (see below.) Ask your loan officer about this issue if you need clarification on how it affects your transaction.
Condo Project Type and Size
The project must predominantly serve residential purposes, with most of its floor area dedicated to residential units. It must also adhere to all applicable state and local laws, be financially stable, and carry proper insurance.
Some condo owner association bylaws (specifically the “right of first refusal”) can render a project ineligible for an FHA loan unless those bylaws do not apply to the borrower via a “grandfather clause” or elimination of the problematic requirement.
FHA lenders may also consider additional factors like the project's location and management quality.
Condo Project Approval or Denial
FHA loan rules in HUD 4000.1 state that after submitting a condo project for approval, HUD may issue a formal announcement about adding that project to the list. HUD will also formally deny an application and explain the reasons for the decision where applicable.
Not All Condo Projects Can Be Approved, But Individual Units Can
It pays to understand the FHA criteria for approving a condo project, but first-time buyers can’t be expected to know every single rule. One important nuance to be aware of when shopping for a condo with an FHA loan?
Even if there’s one that is not on the approved list, all hope is not lost for getting a loan to buy a specific unit.
FHA loan rules were modified in the 21st century to include single-unit approval, which means if a condo project isn't FHA-approved, you still have the option to apply for an FHA mortgage.
In such cases, you may find the condo project must have a minimum amount of living units, a possible restriction on how many of those units can be owned with an FHA loan, and there’s even a “discretionary” process for approving single-unit transactions that may apply to you.
Ask a participating lender about this option and which condo project options may qualify for single-unit approval.
------------------------------
RELATED VIDEOS:
Disclosures Give Transparency to Borrowers
Understanding the Purpose of Your Mortgage Down Payment
Putting Money Into Your Escrow Account
You can buy a condo unit with an FHA loan, but these transactions are a bit different than those for FHA loans to buy a house in the ‘burbs.
What to Know About FHA Condo Loans
FHA loan rules in HUD 4000.1 state that the condominium project must typically be on or added to the FHA-approved list. There are exceptions.
Some condos not on that list may still be approved for an FHA mortgage if the condo and/or the project meet specific requirements (see below.) Ask your loan officer about this issue if you need clarification on how it affects your transaction.
Condo Project Type and Size
The project must predominantly serve residential purposes, with most of its floor area dedicated to residential units. It must also adhere to all applicable state and local laws, be financially stable, and carry proper insurance.
Some condo owner association bylaws (specifically the “right of first refusal”) can render a project ineligible for an FHA loan unless those bylaws do not apply to the borrower via a “grandfather clause” or elimination of the problematic requirement.
FHA lenders may also consider additional factors like the project's location and management quality.
Condo Project Approval or Denial
FHA loan rules in HUD 4000.1 state that after submitting a condo project for approval, HUD may issue a formal announcement about adding that project to the list. HUD will also formally deny an application and explain the reasons for the decision where applicable.
Not All Condo Projects Can Be Approved, But Individual Units Can
It pays to understand the FHA criteria for approving a condo project, but first-time buyers can’t be expected to know every single rule. One important nuance to be aware of when shopping for a condo with an FHA loan?
Even if there’s one that is not on the approved list, all hope is not lost for getting a loan to buy a specific unit.
FHA loan rules were modified in the 21st century to include single-unit approval, which means if a condo project isn't FHA-approved, you still have the option to apply for an FHA mortgage.
In such cases, you may find the condo project must have a minimum amount of living units, a possible restriction on how many of those units can be owned with an FHA loan, and there’s even a “discretionary” process for approving single-unit transactions that may apply to you.
Ask a participating lender about this option and which condo project options may qualify for single-unit approval.
------------------------------
RELATED VIDEOS:
Disclosures Give Transparency to Borrowers
Understanding the Purpose of Your Mortgage Down Payment
Putting Money Into Your Escrow Account
Do you know what's on your credit report?
Learn what your score means.
