Using FHA Mortgages for Condominium Purchases

Many people choose to purchase condominiums especially because they require less hands on maintenance and can be much more affordable than regular single family homes. In the past, it was not unusual to use FHA mortgages for these condominium purchases. The low down payment requirement for FHA mortgages in conjunction with low FHA mortgage rates are the main attractions for condo buyers to take on FHA mortgage financing. In recent years, things have changed and borrowers must be careful when looking at a condominium purchase that they plan on purchasing with an FHA mortgage.

FHA has made condominium approval guidelines stricter than it was in the past. In order for a condominium to be FHA approved, no more than 25% of the property’s total floor area can be for commercial purposes. Keeping with FHA’s affordable housing policy, it should be no surprise that no more than 10% of the units can be owned by one investor, while at least 50% of the units must be owner occupied. Since home owners association dues are an important part of keeping the maintenance of condominiums up to date, FHA does not allow more than 15% of the total units to be in arrears (more than 30 days past due). Since so many people use FHA mortgages for financing, FHA will not allow more than 50% of the total units in an approved condominium to have outstanding FHA case numbers or active FHA insured loans which reduces their risk in one development. When the 50% limit has been reached, FHA will not assign any further FHA case numbers. There must be also be adequate insurance and a separate reserve account set up for emergencies by the HOA. While these requirements may have been in effect in the past, some of the percentages have changed and have become difficult for condominiums to meet with today’s real estate environment.

FHA has now made it necessary that condominiums be re-certified for approval every two years. For these reasons, it is very important that borrowers who are interested in purchasing a condominium be ready to perform the necessary research to make sure that the condo is approved and for how long. Unapproved condos can apply for approval, but this takes time and can delay any scheduled closing. To help consumers with their search, FHA keeps an active list of approved condos that can be accessed by anyone at any time. It it reasonable to say that borrowers who plan on using an FHA mortgage should check this list prior to actually looking at any condominium to purchase.

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