Can I Buy a Condo With an FHA Loan? Everything You Need to Know

Buying a condo can be an attractive option for many homebuyers, especially first-time buyers. Condos offer lower maintenance than single-family homes and are often more budget-friendly. However, financing a condo purchase can have some unique requirements. If you want to buy a condo using an FHA loan, you may be wondering – can I buy a condo with an FHA loan?

The short answer is yes, you can purchase a condo with an FHA loan under certain conditions. FHA loans are popular options for condo buyers because they require lower down payments and credit scores than conventional mortgages. However, not every condo will qualify for FHA financing.

In this comprehensive guide, we’ll cover everything you need to know about buying a condo with an FHA loan, including

• What is an FHA loan?
• FHA condo approval requirements
• How to find FHA-approved condos
• The pros and cons of FHA loans for condos
• Alternative condo loan options

What is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration (FHA). The FHA insures these loans, so lenders can offer more flexible underwriting guidelines than conventional mortgages.

Some key features of FHA loans include

• Down payments as low as 3.5% of the purchase price.
• Lenient credit score requirements – most lenders accept scores of 580 and above.
• Low closing costs that can often be financed into the mortgage.

These benefits make FHA loans a popular option for first-time homebuyers and buyers with lower incomes or credit scores. However, FHA loans can only be used to purchase a primary residence, not an investment property or vacation home.

FHA Condo Approval Requirements

The FHA has specific approval requirements for condos financed with FHA loans. Before 2019, the entire condo community had to be FHA-approved before any units could close with FHA mortgages.

Now, thanks to a 2019 FHA condo rule change, individual condo units can become FHA-approved through a streamlined process. However, there are still restrictions in place:

• The condo project must be complete – no new construction.
• There must be at least 5 units in the project.
• No more than 10% of the units can have FHA financing.
• At least 50% of the units must be owner-occupied.

Additionally, your lender will review the condo project’s finances, insurance, occupancy ratios, reserves, and potential lawsuits before approving FHA financing.

How to Find FHA-Approved Condos

If you have your heart set on an FHA loan, finding an already FHA-approved condo will make the financing process much smoother. Here are some tips for locating FHA-approved condos:

• Check HUD’s Condo Project Approval list – search by state, county, city or project name.
• Ask your real estate agent to provide a list of FHA-approved condos in your area.
• Contact the condo association to ask if the property has FHA approval or has applied.
• Look for the Condo Project Approval in the listing details of properties you’re interested in.

The FHA condo approval process takes 30-45 days on average, so don’t wait until you’ve found a property to start searching! Being flexible on location can help increase your chances of finding an FHA-approved condo.

Pros and Cons of FHA Loans for Condos

FHA loans offer many benefits for condo buyers, but also have some potential drawbacks to consider:

Pros

• Low 3.5% down payment requirement
• More flexible credit score requirements
• Lower mortgage insurance premiums than conventional loans

Cons

• Limited inventory of FHA-approved condos
• Required upfront mortgage insurance premium of 1.75%
• Ongoing annual mortgage insurance for life of the loan
• Condo projects require recertification every 2 years

Carefully weigh the pros and cons when deciding if an FHA loan is the right fit for your condo purchase.

Alternative Condo Loan Options

If you can’t find an FHA-approved condo, don’t worry! Here are some alternative mortgage options for financing a condo purchase:

• Conventional loans – Require higher credit scores and down payments, but offer lower mortgage insurance rates.
• VA loans – Offer 100% financing with no down payment for eligible veterans.
• USDA loans – 100% financing available in designated rural areas.
• HomeReady® or Home Possible® mortgages – May offer lower down payments and more flexible credit requirements.

Discuss these and other loan programs with your lender to find the best option if an FHA loan doesn’t work for your situation.

The Bottom Line

Yes, you can buy a condo with an FHA loan! However, unique approval requirements mean not all condos will qualify. Focus your condo search on FHA-approved properties to streamline the financing process. Or, consider alternative mortgage programs if needed.

Buying a home is a big decision, so consult with real estate and lending professionals to understand all your options. With the right information and preparation, you can successfully finance your dream condo – whether with an FHA loan or another mortgage program.