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How do condo loans differ from other FHA insured home loans? That's a frequently asked question topic for FHA loans, and with good reason. FHA loan rules for home purchases are different than the rules for loans on condominium units.

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FHA Condo Project Approval Guidelines

February 21, 2012 - How do condo loans differ from other FHA insured home loans? That's a frequently asked question topic for FHA loans, and with good reason. FHA loan rules for home purchases are different than the rules for loans on condominium units, due to the unique nature of condo ownership.

Condo projects feature ownership of a portion of a property rather a single buyer owning the entire property. Such ownership requires agreements and covenants between the owners to care for common areas, address issues that can affect the entire building and other concerns.

FHA loan rules for condo mortgages include an approval requirement--any condo eligible for an FHA insured mortgage must be on the official list of FHA-approved condo projects. Some readers want to know if there is a list of the FHA requirements that a condo project needs to comply with in order to be included on or added to the FHA-approved list.

Naturally, the FHA publishes these guidelines in order to help buyers, sellers, and developers understand the FHA rules in this area. The list of FHA requirements can be downloaded at:

portal.hud.gov/hudportal/documents/huddoc?id=11-22mlguide.pdf

These rules cover a wide range of topics. For example, according to the FHA, condo projects must consist of two units or more, and be covered by hazard and liability insurance. Where appropriate, flood insurance must also be present. No more than 25% of a condo project's total floor space can be used for commercial purposes and still be approved for an FHA mortgage.

FHA rules also address ownership issues. "No more than 10 percent of the units may be owned by one investor. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants."

And there are also guidelines about condo bylaws and covenants. One important example; FHA rules do not permit condo association bylaws to contain the "right of first refusal" clause when such a clauses is designed--or enforced--in such a way that it violates the Fair Housing Act.