Can You Get an FHA Loan on a Condo? Everything You Need to Know

An FHA loan, a mortgage insured by the Federal Housing Administration, is a popular choice for many home buyers because of its low down payment and modest credit score requirements. If you want to buy a condo and benefit from the low down payment that comes with an FHA loan, youâll need to either buy in a condo development thatâs already been approved by the Federal Housing Administration or request approval for the individual unit you want to purchase.

The challenge is that FHA-approved condos can be hard to find. And if you canât find one in the neighborhood where you want to buy, youâll need to apply for a different type of mortgage loan to finance the purchase.

Getting an FHA loan to buy a condo can be a great way for first-time homebuyers to break into the housing market. FHA loans require just 3.5% down and have easier credit requirements than conventional mortgages. However, the process of getting approved for an FHA condo loan can be complicated.

In order for a condo to be eligible for FHA financing the entire condo project must be “FHA approved.” This requires the condo association to submit an application and meet certain requirements related to the financial stability and condition of the condo project.

Here’s what you need to know about getting an FHA mortgage for a condo

What are the Benefits of an FHA Condo Loan?

An FHA loan offers several advantages for buying a condo:

Low Down Payment: FHA loans only require 3.5% down, making them more affordable for first-time homebuyers.
Lenient Credit Guidelines: You can qualify for an FHA loan with a credit score as low as 500 with a 10% down payment.
Low Mortgage Insurance: FHA loans require mortgage insurance, but the costs are lower than with conventional loans.
Fixed Interest Rates: FHA loans offer fixed rates that protect you from rising interest rates.
Lower Monthly Payments: With a low down payment and fixed interest rate, FHA loan payments are more affordable.

FHA Condo Project Approval Requirements

For a condo to be eligible for FHA financing, the entire condo community must meet FHA approval guidelines. The condo association must submit an application with details on:

Owner-occupancy ratio – At least 50% of units must be owner-occupied.
Financial stability – Budget, reserves, and delinquencies are reviewed.
Insurance requirements – Special FHA insurance policies are required.
Condo docs – Declaration, bylaws, and rules are reviewed.
Litigation – Any lawsuits or pending litigation issues can risk approval.
Pre-sales – For new construction, at least 70% of units must be pre-sold.

The approval process can take anywhere from a few weeks to several months depending on the condo project.

How to Check if a Condo is FHA Approved

The U.S. Department of Housing and Urban Development (HUD) maintains a database of FHA approved condo projects. To check if a condo you’re interested in is approved:

Search the FHA Condo Project Approval list by state and project name.
Ask the condo association board or management company if the project is approved.
Have your lender look up the status during the mortgage application process.

Project approvals are granted for 2 years, after which time recertification is required. So just because a project was previously approved doesn’t guarantee current approval.

Alternatives if Your Condo Isn’t FHA Approved

If your condo doesn’t meet FHA’s condo project approval guidelines, you have a few options:

Apply for a conventional loan – Conventional loans have stricter credit and down payment requirements but don’t require project approval.
Explore other government loans – USDA and VA loans are alternatives that may be available depending on your location.
See if your project qualifies for an exception – Single-unit “site condos” don’t require project approval.
Wait for approval – If your condo association is working on getting approved, you may be able to buy later once approved.
Put more money down – On a case-by-case basis, some lenders may waive condo project approval if you put 10-20% down.

Tips for Getting Approved for an FHA Condo Loan

If you want to buy a condo with an FHA loan, here are some tips:

Find out if the condo you want is already FHA approved – this makes financing much easier.
Be prepared to meet FHA borrower requirements – minimum 580 credit score with 3.5% down.
Get pre-qualified – this shows sellers you can get financing and speeds up the purchase.
Ask the seller to have the condo association provide paperwork needed for FHA approval.
Be ready to move quickly if your offer is accepted – FHA approvals can take time.
Work closely with your lender and real estate agent to coordinate the approval process.
Make sure your debt-to-income ratio meets FHA limits – typically around 43%.

The Bottom Line

FHA financing can be a great option for purchasing a condo, but the condo project must be approved by FHA first. This extra approval step makes the process more complicated than financing a single family home. As a buyer, you’ll need to research carefully to find an already approved condo project that meets your needs. With proper planning and preparation, you can successfully use an FHA loan to buy your dream condo!

Cons Of FHA Loans For Condos

An upfront mortgage insurance premium (MIP): Perhaps the biggest negative of an FHA loan is the required upfront mortgage insurance premium (MIP). All FHA borrowers must pay an upfront MIP equal to 1.75% of the amount theyâre borrowing.
An annual mortgage insurance premium (MIP): FHA borrowers are also responsible for an annual mortgage insurance premium thatâs broken down into monthly installments and tacked onto each monthâs mortgage payment. If youâre a new or recent FHA borrower, youâll most likely pay 0.55% of your loanâs original amount in annual MIP obligations.
Condos possibly not qualifying for FHA financing: It can be challenging in some markets for buyers to find condos that they can buy with an FHA loan.

Letâs take a look at a few frequently asked questions about FHA-approved condos.

What are the requirements to get a condo FHA-approved?

To qualify for FHA financing, an individual unit must be in a condominium project not already approved by the FHA. The development must have at least five units and be completely built. No more than 10% of the units in a condo development can be financed with FHA loans by a single entity, and at least 50% of the total units must be occupied by their owners.

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FAQ

Why do condos not accept FHA loans?

A condominium project may not be FHA approved if they do not meet the restrictions and eligibility requirements. While FHA loans have more lenient borrower requirements, the condo property requirements are stricter.

Is it harder to get a mortgage for a condo?

Financing a non-warrantable condo will likely be more difficult, as you won’t be able to access the low-down-payment options offered by some traditional mortgage programs and you’ll be limited to a smaller pool of potential lenders.

What is a FHA approved condo?

FHA loans are insured by the Federal Housing Administration. They’re meant for first-time homebuyers or those who haven’t owned property in the last three years. An FHA-approved condo is a condominium that is eligible to be purchased with an FHA loan.

Is it hard to get FHA approved?

While conventional mortgages usually require a credit score of 620 or more, FHA loans are open to borrowers with credit scores as low as 500. You don’t need a big down payment. If your credit score is 580 or more, you could qualify to put down just 3.5%. Interest rates are competitive.

Can I buy a condo with an FHA loan?

If you want to buy a condo using an FHA loan, the condo must meet these requirements and be included on the FHA Condominium Approval List. Condo associations must apply to have their project added to the list. Want to see if a specific condo complex is approved by the FHA?

How do I get an FHA loan for a condo?

In order to get approved for FHA loans, a condominium community or single-unit residence has to be appraised to meet FHA loan standards. Once the community or single unit is approved, it receives a condo ID number. Prior to 2019, an entire condominium community needed to go through the approval process.

What is an FHA approved condo?

An FHA loan is a mortgage insured by the FHA and issued by an FHA-approved lender. An FHA-approved condo is a condo that can be financed with an FHA loan. In order to get approved for FHA loans, a condominium community or single-unit residence has to be appraised to meet FHA loan standards.

Do condo units qualify for an FHA loan?

To qualify for an FHA loan, a condo unit is required to meet a few conditions: It must be located in a condominium project that’s not already approved by the FHA. It must be in a development with at least five condo units. Units in condo buildings that are under construction aren’t eligible for FHA approval.