Can I Buy a Condo With an FHA Loan? A Complete Guide

For many first-time homebuyers and buyers on a budget, condos can be an affordable way to purchase property and start building equity However, financing a condo purchase often comes with more restrictions compared to financing a single-family home. One common question from condo buyers is “Can I buy a condo with an FHA loan?”

The short answer is yes, you can get an FHA loan to buy a condo, provided the condo development is FHA-approved. FHA loans allow buyers to purchase a home with as little as 3.5% down payment. However, the condo must meet certain requirements set by the Federal Housing Administration (FHA) to qualify for FHA financing.

This comprehensive guide provides details on using FHA loans for condos, including:

• Overview of FHA condo financing
• Requirements for FHA condo approval
• Owner-occupancy and presale requirements
• Finding FHA approved condos
• Pros and cons of FHA condo loans

Follow these steps to successfully use an FHA loan to purchase a condominium.

Overview of FHA Loans for Condos

The Federal Housing Administration (FHA) is a government agency that insures loans made by private lenders, FHA loans allow buyers to purchase a home with as little as 35% down and have more flexible credit requirements than conventional loans

However, FHA guidelines for condo financing are more stringent than requirements for financing single-family homes For a condo purchase using FHA financing, the individual condo unit and condo development must be FHA approved.

Key facts about FHA condo loans:

• Down payment as low as 3.5%
• Requires condo development to be FHA approved
• Lower credit score requirements
• Upfront and annual mortgage insurance premiums

FHA condo approval involves submitting detailed condo association documents for review by the FHA. The process ensures the condo development meets financial stability and quality standards.

Requirements for FHA Condo Approval

For a condo to qualify for FHA financing, the condo association must submit an application to get the condo development approved by the FHA. Specific approval requirements depend on the age and status of the condo building.

General eligibility requirements include:

• At least 50% of units must be owner-occupied as primary residence
• No more than 25% of total floor space used for commercial purposes
• Sufficient insurance coverage and funding in reserves
• Financial documents and condo association meeting minutes for review
• Limit of 15% of unit owners behind on condo association fees

New construction and conversions have additional approval requirements. The process to get FHA condo approval can take anywhere from 2 weeks to several months.

FHA Condo Owner-Occupancy and Presale Requirements

In addition to development approval, individual FHA condo loans must meet owner-occupancy and presale requirements:

• Owner-occupancy – At least 50% of units must be primary residence lived in by owners. FHA rules were temporarily eased to allow 35% owner-occupancy.

• Presale requirements – For new construction, at least 70% of units must be presold before FHA will insure mortgages.

These requirements ensure a strong base of owner-occupants and limit investor speculation in FHA approved developments.

Finding FHA Approved Condo Developments

The FHA provides a publicly searchable database of all approved condo developments on HUD.gov. Search by condo name, city or ZIP code to check FHA approval status.

Buyers can also ask sellers to verify a condo’s approval or work with lenders to submit approval applications if needed. Real estate agents may know or can help determine if a condo development is FHA approved.

New construction condos often advertise if they allow FHA financing. Checking FHA approval early in the buying process is important to avoid delays.

Pros of Using FHA Loans for Condos

Benefits of FHA condo loans include:

• Low down payments, as low as 3.5%
• More flexible credit score requirements
• Lower monthly mortgage insurance premiums than conventional loans
• Purchase price limits higher than conforming loans in some areas

For buyers who don’t have a 20% down payment saved up, FHA loans make financing a condo purchase attainable. The loans provide competitive interest rates and an affordable path to homeownership.

Cons of Using FHA Loans for Condos

Potential drawbacks of FHA condo lending:

• Stricter condo approval process creates more hurdles
• Upfront and annual mortgage insurance premiums add to cost
• Lower loan limits than conforming loans in some areas
• Potentially longer closing timelines to get condo approved

The additional approval requirements mean using an FHA loan to buy a condo takes more planning and paperwork. Buyers also have to factor in mortgage insurance costs.

The Bottom Line – FHA Condo Loans Expand Possibilities

So if you’re wondering “can I buy a condo with an FHA loan?”, the answer is yes – with proper planning, condo approval and a solid understanding of FHA guidelines. An FHA-insured mortgage expands possibilities for buying a condo with less cash upfront.