FHA Loan Articles
FHA Condo Loan RulesThere are many different types of FHA loans available for borrowers who want more options than a typical suburban home. Many types of properties may be purchased with an FHA insured mortgage, including manufactured homes, multi-family units, and condominiums.
FHA condominium loans can be more complicated than some other types of new purchase real estate loans due to the FHA has requirements places on condo projects. These factors shouldn't discourage a borrower from exploring their FHA condo loan options, but it's important to be aware of the rules in order to save time and begin the search for a new home in the right place.
In order for a given condo to be approved for an FHA home loan, it must be on the FHA's list of approved condominium projects. FHA publishes a searchable list of approved condo projects on its website.
What criteria must a condominium project meet to be included on the "approved" list? FHA guidelines state, "to be eligible for FHA mortgage insurance, the project must have been declared and exists in full compliance with applicable State law requirements of the jurisdiction in which the condominium project is located and with all other applicable laws and regulations."
A condo project will not be designated "FHA approved" unless it has at least two units, and is covered by hazard, liability and other insurance where applicable.
Any part of the condo which is used commercially must conform to typical FHA rules which require business use of the property to be subordinate to the residential nature of the space. Business space must not be larger than 25 percent of the total floor area. FHA rules also state investor ownership of the property cannot exceed ten percent.
The FHA will not approve a condo project unless at least half the units have been sold prior to the FHA's endorsement of the first loan in that building.
Some properties are not eligible due to the nature of the project. For example, "condo hotels" are not allowed on FHA approved condo project list. Also forbidden--timeshares, houseboat projects or condos that feature more than one dwelling in a single condominium unit.
If you want an FHA condo loan, FHA encourages the use the approved condo list as a way to start searching for the right building your area. This tool will save a house hunter much time and energy-why look for buildings you aren't sure have been approved?
The HUD search tool lists approved condo projects by condo name, state, zip code and other factors.