Can You Get a Condo With an FHA Loan? A Guide to FHA Condo Financing

The Federal Housing Administration (FHA) mortgage insurance program can be a great option for first-time homebuyers and buyers with lower credit scores who want to purchase a condominium. FHA loans require just a 3.5% down payment and have flexible credit requirements. However, not all condos qualify for FHA financing – the condo development must be “FHA approved” to be eligible. This leads many condo buyers to ask – can I get a condo with an FHA loan?

The answer is yes, you can get a condo with an FHA loan, provided the individual unit or condo project meets FHA eligibility guidelines. There are a few different pathways to FHA approval that condos can pursue

Overview of FHA Condo Loan Requirements

Before diving into the details, let’s review some key requirements condos must meet to be eligible for FHA financing:

• Owner-occupancy – At least 50% of the units must be owner-occupied primary residences.

• Pre-sales – For new construction at least 70% of the units must be pre-sold before the FHA will insure mortgages.

• Delinquencies – No more than 15% of unit owners can be over 60 days delinquent on HOA fees.

• Commercial space – Non-residential area is limited to 25% of the total space.

• Investors – No single entity can own more than 10% of the units.

• Insurance and reserves – The HOA must maintain adequate insurance coverage and budget reserves.

• Construction – All units and common facilities must be 100% complete before closing on FHA mortgages.

• Litigation – The HOA cannot be involved in any pending litigation or lawsuits.

Meeting these requirements allows the condo project to be FHA approved, making all units eligible for FHA loans. Individual units can also pursue “spot approval” even if the project is not approved.

Getting Entire Condo Projects FHA Approved

For buyers looking to use FHA financing on a condo, the first step is to check if the entire condo project is already approved. The FHA publishes a searchable database of approved developments here.

If the project is not on the approved list, the condo association can apply for approval by submitting the required documentation to HUD, including:

• Condoplat and legal documents
• Financial statements and HOA meeting minutes
• Owner occupancy certification
• Evidence of required insurance policies
• Construction completion docs for new builds

The approval process can take anywhere from a few weeks to several months depending on the history and complexity of the condo project. Approvals last for 2 years before recertification is required.

Getting Spot Approval for Individual Condo Units

FHA guidelines also allow for spot approval of specific condo units, even if the larger project is not FHA approved. This is a big advantage over conventional loans, which require full project approval.

There are three avenues for getting spot approval on an individual FHA condo loan:

1. Site Condos

Detached “site condos” that meet certain criteria can get automatic spot approval, including:

• Fully detached structure and ownership of entire site
• No shared common areas or amenities
• All maintenance and insurance paid by unit owner

Site condos function like single family homes and don’t need full project approval.

2. Limited Review Process

Attached condos that are not FHA approved can go through a limited review process for spot approval. These units must meet all FHA requirements except for project approval.

3. Direct Endorsement Review

Finally, a direct endorsement lender can review condo documents for spot approval eligibility according to HUD guidelines. This option depends on the lender’s ability to underwrite condo loans.

Tips for Getting a Condo Approved for FHA Financing

If you have your heart set on a certain condo, here are some tips for clearing FHA financing hurdles:

• Check for approval – See if the project is already on the FHA approved list before you start the buying process.

• Review docs – Have your lender or real estate agent review the condo documents, budget, and litigation status for any red flags.

• Stick with safer bets – Opt for established projects with high owner-occupancy and no construction defects. New conversions and litigation-laden projects are tough to get approved.

• Ask the HOA to apply – If the project isn’t approved, see if the HOA is willing to submit for FHA approval so the whole building is eligible.

• Pursue spot approval – If the HOA won’t or can’t apply, go for individual unit spot approval. Site condos have the easiest path.

• Get project re-approved – For expired approvals, provide updated docs for quick recertification if nothing major has changed.

With some persistence, you can often find an approval pathway for financing your dream FHA condo. Reach out to specialized lenders and agents familiar with the FHA condo process so they can guide you accordingly.

The Pros and Cons of Using an FHA Loan for a Condo

FHA condo loans offer many perks for buyers, but also come with some key drawbacks to weigh:

Pros of FHA Condo Loans

• Low down payment – Just 3.5% down, much less than conventional mortgages

• Lenient credit – Minimum 580 score for 3.5% down

• Lower rates – Typically 0.25% to 0.5% lower than conventional rates

• Spot approval eligible – Individual units can qualify even if project is not approved

• Gift funds allowed – Family gifts can be used to cover the down payment

Cons of FHA Condo Loans

• Mortgage insurance – Required for life of the loan unless you refinance

• Upfront MIP – 1.75% upfront mortgage insurance premium added to loan amount

• Condo approval delays – Project or spot approval can take weeks or months

• More paperwork – Extra documentation and stringent underwriting compared to conventional loans

• Recertification required – Project approval must be renewed every 2 years

• Prepayment penalty – Paying loan off early results in lump refund of prepaid MIP instead of monthly savings

Alternatives to FHA Condo Loans

If you are concerned about FHA condo approval wait times or drawbacks, here are a couple alternatives to consider:

• Conventional 97 – 3% down conventional mortgage that may offer quicker condo approval

• VA loans – 100% financing options for veterans buying an approved VA condo

• USDA loans – Zero down payment loans in designated rural/suburban areas

• State programs – Check for special first-time buyer programs offered in your state

Be sure to get rate quotes for multiple loan types and weigh the pros and cons before settling on FHA as your best condo mortgage option.

Partner With a Condo Loan Expert

The condo approval process for FHA loans can be complex, but is very feasible with an experienced lender familiar with FHA guidelines. Be sure to consult a loan officer that specializes in FHA condo financing to streamline approval and closing.

With proper guidance, an FHA loan can be a great way to buy a condo with less cash out of pocket. Check your condo building’s status, gather documentation, and start the pre-approval process to successfully obtain an FHA mortgage for your new condo home.