FHA Loan Rules for Eligible and Ineligible Condo Projects

January 16, 2015

There are plenty of FHA loan applicants who are interested in learning what the FHA loan rules are regarding condo loans. One of the first thing you’ll learn is in order to be approved for an FHA home loan to buy a unit in a condo project, that project must meet certain specifications provided by the FHA.

There’s a list of conditions that render a condo project as eligible or ineligible to become FHA approved. According to the FHA Condo Project Approval and Processing Guide:

“Eligible condominium projects are those that have been declared and exist in full compliance with applicable state law requirements of the jurisdiction in which the condominium project is located, including good standing with the State, and with all other applicable laws and regulations.”

“FHA insures condominium single unit loans for up to 30 year terms to purchase or refinance a unit in an FHA-approved condominium project. The condominium project must be primarily residential, contain at least two (2) dwelling units and can be detached, semi-detached, a row house, a walk-up, mid-rise, high-rise, including those with or without an elevator, or manufactured housing.”

The Condo Approval Guide includes a list of things that can disqualify a condo project from an FHA mortgage. FHA will not insure mortgages that are, in the words of the guide, “secured by units in certain types of condominium projects, regardless of the characteristics of the unit mortgage. Loans secured by units within the following types of projects are not eligible for FHA insurance.”

Here is a list of features or project types not eligible for FHA single family home loans:

• All projects not deemed to be used primarily as residential.
• Projects with mandatory rental pooling agreements that require unit owners to either rent their units or give a management firm control over the occupancy of the units.
• Projects that restrict the owner’s ability to occupy the unit.
• Projects where more than 25 percent of the total space is used for nonresidential purposes.\
• Live/work units where more than 25 percent of the total project or unit square footage is used for nonresidential purposes.
• Condominium Hotel or “Condotels.”
• Projects that are managed and operated as a hotel or motel, even though the units are individually owned.
• Projects with names that include the words “hotel” or “motel.”
• Projects that include registration services and offer rentals of units on a daily, weekly or monthly basis.
• Hotel or motel conversions (or conversions of other similar transient properties).