It used to be extremely difficult to use an FHA loan to purchase a condo. In fact, in the past, over 90% of the nation’s condo projects did not qualify for FHA-backed mortgages. This has caused an epidemic in which many people have assumed that they can’t qualify for an FHA loan at all for their condo purchase. However, the Federal Housing Administration issued an update to its condominium rules a few years ago announcing that they will allow “spot approval” on individual units. They have also taken more steps to expand eligibility on these properties.
FHA loans are underwritten and administered through third-party mortgage lenders but backed by the government (the Federal Housing Administration). This simply means that the FHA protects your lender against loss if you default on your loan. FHA loans are great for low-moderate income and first-time homebuyers because they have less strict requirements than conventional loans. These benefits include:
- Low down payments — only 3.5% down required for credit scores 580+
- Flexible income and credit requirements
- Fixed- and adjustable-rate mortgages
- Loans for 1-4 unit properties and condos may be available
- Down payment funds can be a gift from a relative or employer*
- Home sellers can contribute up to 6% of the closing costs
*Subject to underwriting review and approval.
FHA loans are federally backed loans available in 15-year and 30-year terms. They offer less stringent credit standards that are designed to help give less credit-worthy borrowers a chance to become homeowners. Learn more about FHA loans here.
About FHA single unit approval (SUA aka SPOT approval)
Some condominium complexes are FHA-approved complexes, meaning you can fund your purchase of a condo in one of these complexes with an FHA loan automatically. To check if your condominium complex of interest is already FHA-approved, you can use this tool from the U.S. Department of Housing and Urban Development (HUD), which allows you to search for FHA-approved condominium projects by location, name, or status. If your complex has a status of “withdrawn,” “rejected,” or “expired” — or if you don’t see your condo project in the database at all — odds are you need single unit approval.
In the case where a complex is not FHA-approved, luckily it is still possible to get approved if the project meets the guidelines for FHA approval. See below for the list of current guidelines.
What are the guidelines for FHA approval?
Speaking of those guidelines, what exactly are they? Well…
- FHA concentration can be no more than 10% of the project (or 2 units for projects with 5-9 units).
- Owner Occupancy of the project needs to be at least 50%, meaning half of the units need to be lived in as a primary residence or second home, not rented out to a tenant.
- No more than 15% of the units can be 60 days or more delinquent in payment of their HOA dues.
- Individual Owner Concentration (the percentage of units owned by a single owner) can be no more than 10% (1 unit for projects with 5-20 units).
- Commercial Space in the building/project cannot exceed 35% and needs to be documented to be financially separate from the residential units (additional financial documents and legal documents will be required).
How to know if your unit is SUA eligible
A surefire way to determine your unit’s eligibility for single unit approval for an FHA loan is to get in contact with a reputable lender. Lenders like us will do all the hard work of determining if the condo meets requirements and getting you pre-approved for an FHA loan.