Homebuyers may have trouble finding a condo project that is on the FHA-approved list. The good news is that changes in FHA loan policy have made it possible to consider an individual condo unit even if the project itself is not on that FHA list.

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Condo Loans and Condo Unit Approval

June 11, 2022

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If you are looking for a condo loan with a low down payment, you may already know about the FHA loan program’s condo loan options.

But some may have trouble finding a condo project that is on the FHA-approved list. The good news is that changes in FHA loan policy have made it possible to consider an individual condo unit even if the project itself is not on that FHA list.

In the past, FHA loan rules in HUD 4000.1 required condo projects to be on or added to an FHA-approved list before they could be considered for an FHA mortgage. These rules are updated now. The FHA Single-Unit Approval process now in place according to an FHA Mortgagee Letter issued in 2019, includes guidance for single condo unit approval IF the following applies:
 
  • The unit is part of a condominium project that did not go through the FHA approval process, or;
  • The unit is in an established condominium project that was previously approved but is now expired, rejected, or withdrawn.
FHA loan rules do not provide a “blanket policy” for all condo units. To qualify for FHA single-unit approval, the condo project must have five units or more and the project must be ready for occupancy. 

FHA loan rules say the condo cannot be a manufactured home, and there is a “maximum FHA concentration” for the project, meaning there is a limit to how many units in the project may be purchased with an FHA mortgage.

If you need to start the single-condo unit approval process, you’ll talk to your loan officer about completing HUD Form 9991, a Condo Loan Single Unit Questionnaire. That must be submitted to and reviewed by HUD. 

HUD Form 9991 is required only for FHA condo purchase loans. If you are refinancing an existing FHA mortgage with an FHA Streamline loan the form is not required.

Remember, when you find a condo unit you want to purchase, it’s not automatically necessary to apply for approval; the condo project may already be on the FHA’s list.

You can search for the condo project in the approval list published on the HUD official site. They are searchable by name, location, and status. The projects listed in this database are for sale by private sellers and are not offered for sale by the FHA or HUD as REO properties.

An FHA condo loan can be an advantage if you want to save money on the down payment. They are similar to other FHA loans when it comes to the credit requirements for loan approval, and mortgage insurance requirements. The condo unit and project approval process may not seem so typical but it is not an impossible task to get a unit or project approved.

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