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What is the difference between a site condo and an ordinary condo? There are FHA loans for condo units in approved projects and there are also rules in the FHA Lender’s Handbook that address when the purchase of a site condominium is permitted. But what is the difference?

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FHA Loans for Condos: Site Condos vs. Ordinary Condos

October 30, 2020

FHA Loans for Condos: Site Condos vs. Ordinary Condos
What is the difference between a site condo and an “ordinary” condo? There are FHA loans for condo units in approved projects and there are also rules in the FHA Lender’s Handbook that address when the purchase of a site condominium is permitted. But what is the difference?

FHA Condo Loan Rules

FHA loan rules for condo units are found in HUD 4000.1, on page 153 of Section II of the guide. Condos are described there as a development “created by state or local law and is characterized by fee-simple ownership of a unit, which is defined in the condominium documents, together with common areas.”

Condo owners are typically required to join and abide by a Homeowner’s Association or Condo Owner’s Association that governs issues such as maintenance and upkeep of common areas, collection of property assessments, and other responsibilities.

A condo project must be on an FHA-approved list or be added to it as a condition of loan approval.

FHA-Defined Characteristics of a Condo Project

The FHA specifically defines a condo project and condo unit as follows: 

Condominium Project: A project in which “one-family Dwelling Units are attached, semi- detached, detached, or Manufactured Home units”. Owners of these units “hold an undivided interest in Common Elements” which are defined as “...common areas and facilities including underlying land and buildings, driveways, parking areas, elevators, outside hallways, recreation and landscaped areas, and other elements described in the condominium declaration.”

Condominium Unit: The individual real estate unit within the larger condo project.

FHA Definition and Rules for Site Condos

Site Condominiums: A condominium project “that consists entirely of single family detached dwellings”. These homes have no attached buildings, shared garages, etc.

Site condos also include projects made up of “single family detached or horizontally attached(townhouse) dwellings where the unit consists of the dwelling and land”. Such projects do not have “any Manufactured Housing units”--FHA loan rules say manufactured housing condominium units “may not be processed as Site Condominiums.”

As long as the condo unit, site condo or otherwise, meets the FHA loan requirements, your participating lender may approve a condo loan assuming the borrower is financially qualified and the project is on or added to the FHA approved list.

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