You may have heard the term FHA approved condos but do you really understand what that means? Are they properties owned and managed by the FHA or the Federal Housing Administration? Are they rental condos? They are condominium properties that meet a series of requirements so that they are eligible to be purchased using an FHA loan. Only condominiums associations can be FHA pre-approved, townhomes associations are not included and are not considered.
The FHA isn’t the mortgage lender. Instead, they insure mortgage loans from approved banks and lenders. The FHA is responsible to reimburse the lender of the mortgage in case the buyer defaults on their loan.
For a condo association to be eligible for FHA approval, the property must contain at least 2 units, are detached or semidetached, row houses or are either walk-up, mid- or high-rise units.
What requirements does a property need to meet FHA requirements?
The FHA has some strict criteria for a condo to qualify for approval. The result is there are fewer properties available to potential buyers. While the list is large and in-depth, here is a breakdown of the notable requirements that must be met by a property:
• Construction on the property must be completed
• The threshold of investor owned units or units being leased cannot exceed 50%
• Commercial space cannot occupy more than 50% of the property
• 15% of the units cannot have delinquent dues over 60 days past due
• 10% of the properties budget must go to the reserve funds
• The reserve funds must be fully adequate to cover association capital expenses
• The property has adequate insurance coverage
There are certain properties in general that will not be considered for FHA approval. The deal breaker properties include:
• Houseboat projects
• Assisted living facilities
• Properties where the condo developer retains ownership of the common elements
• Condo/hotel hybrid properties (yes, they do exist)
• Properties located in coastal barrier areas
• Properties that restrict the owner’s ability to occupy the unit
If you want to give the document a full read, it is 95 pages for your enjoyment. The rules in place assure that loans will be issued to properties that are in good financial standing and desirable for owners.
How to find FHA approved condos?
The first step you can do is either reach out to Aimee or Michele at our office if you are looking to purchase an FHA approved condo. If you like doing your own searches, and then reach out to an agent, you can research all available FHA approved condos on the HUD website. The lists are updated frequently.
Do you have to qualify to apply for an FHA loan?
FHA loans, in comparison to other loans, are flexible and easy to obtain. A perfect credit score is not needed to obtain a FHA loan to purchase a condo. A FICO score as low as 580 is typically considered the lowest point to be eligible to qualify. Other lenders limit the lowest credit limit to 680. There are plenty of combined factors that go into approval besides credit score. Credit history, income, and job stability are the contributing factors for approval.
Start your search now
If you never heard the term FHA approved condo, we now hope you have a better understanding of what they are. Additionally, if you are in the market for a condo, you now know the steps that are required to attain one as a buyer and where to search for one.
You might not be able to live your dream of living on an FHA approved boat project or in a coastal barrier area. But the silver lining is you know you are getting a home in a well-maintained property that has adequate funds to plan for future capital expenses. Having the piece of mind that your home and property are taken care of let you focus on other things, like living your life.