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How to Find and Buy FHA-Approved Condos
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Buying an FHA-approved condo is easier today thanks to recent changes made by the Federal Housing Administration (FHA). Borrowers can take advantage of flexible FHA qualifying guidelines to purchase a home with most of the maintenance and upkeep paid for with monthly condo association fees.
What is a condo vs. an FHA-approved condo?
A condominium or “condo” is a privately-owned unit within a larger building of other units. Generally, condo owners pay condominium association dues for shared common areas, such as garages, pools, outside hallways, gyms and clubhouses. You can buy a condo using a conventional or government-backed loan.
FHA-approved condos, though, have to follow specific rules set by the U.S. Department of Housing and Urban Development (HUD) for borrowers to get an FHA loan. To qualify, a condominium project must provide:
- Proof of sufficient insurance coverage
- Financials to show how it manages its budget
- The status of any outstanding lawsuits
- The condition of the property
Where to find FHA-approved condos
If you have your heart set on a condo and specifically, an FHA loan, it’s easy to check the condominium’s status online. The HUD oversees the FHA loan program and provides an FHA-approved condo list that helps you locate nearby approved condos.
The list doesn’t include FHA-approved condos for sale in your local housing market. Instead, it’s a directory of current HUD-approved condos that qualify for FHA financing.
To look up a condo you’re interested in, you’ll need the following information:
- Condo name. If the condominium is for sale, most likely the listing data will provide the condo name that the project was incorporated under. For a broader search, you can also sort by city, state, county or zip code.
- Condo ID. The FHA assigns a seven-character condominium project ID and a three-digit submission number to each project in its system. Your lender or real estate agent may have access to this information.
- Status. Select “Approved” from the pull-down menu. If the project is approved, then it’s eligible for FHA financing. If not, you’ll see information indicating if its approval was rejected or withdrawn.
- Search type. This field refers to whether you’re checking on the status of a condo that’s already approved, or one that was recently submitted for approval. You can select “both” if you’re not sure.
- Begin and end date. If this is left blank, the lookup tool will produce a list of the most recently FHA-approved condo projects based on your search. However, there a few things to watch for on the list:
- Composition of the project. The FHA has specific guidelines about the number of buildings and phases that are permitted, along with how many must be owner-occupied. No more than at least 65% of condos in a project may be owned by investors in order to gain FHA approval. This section of the list often details any outstanding lawsuits, as well as whether the owners’ monthly dues are being managed properly. Unresolved legal issues or financial mismanagement may be a red flag that the condo is not worth the hassle.
- Expiration date. If the word “expired” shows up in the approval column of the list, that could mean trouble for FHA condo financing hopes. Condominium associations must provide updated financials as well as a questionnaire to maintain their FHA condo approval status.
How to buy FHA-approved condos
First-time homebuyers often choose condos because they offer a happy medium between owning and renting. Each monthly payment builds equity in a home they own, while the monthly condo association fees pay for most of the exterior maintenance.
Condos also tend to cost less than single-family homes in many markets, offering a more affordable starter-home option for rookie homebuyers. In August, the national median condo sales price was $273,300. That’s $41,700 less than the median single-family home sales price of $315,000, according to recent data from the National Association of Realtors.
Even better: The minimum FHA mortgage requirements for condos are the same as for single-family homes. You’ll need the following:
- A 3.5% down payment
- A minimum credit score of 580
- A debt-to-income (DTI) ratio of 43% or less
Factor in monthly condo fees
Monthly condo association dues can add up quickly, ranging from $100 to $700, on average. The fees cover building maintenance and common areas, as well as the salaries for building employees (i.e. doorman, landscaper, handyman, etc.). Condo associations sometimes charge special assessment fees, too, for major upgrades like elevator repairs or a new roof after a major storm. Consider whether you can afford these monthly fees as you weigh the decision to buy an FHA-approved condo.
What if a condo is not FHA approved?
Newer FHA condo approval guidelines make it possible to get an FHA loan on a single condo unit, even if the project is not currently FHA-approved.
There are six factors the FHA considers with this type of FHA spot approval:
- The condominium must be ready to live in. Units that are proposed or under construction are not eligible.
- The project must have at least five total units.
- Manufactured housing is not permitted. Only units in FHA-approved manufactured home condominium projects can be approved.
- The number of units with FHA financing is limited. This is known as “maximum FHA concentration.” No more than 10% of the units in a project with at least 10 units can be financed with FHA loans. For projects with less than 10 units, only two units may be insured by the FHA.
- Your lender must submit a HUD questionnaire for approval. HUD will review the form to determine if the unit is eligible for FHA financing.
- A new condominium project is established if approved. If HUD is satisfied with the questionnaire answers, the unit will be designated as a new condominium project insurable by the FHA.
Mortgage alternatives if your condo is not FHA approved
Don’t fret if the unit you love doesn’t qualify for FHA financing. You have several other condo mortgage options, including:
Fannie Mae and Freddie Mac condominium loans. You may be able to snag a condo with a 3% down payment if you’re eligible for the Fannie Mae HomeReady® or Freddie Mac Home Possible® programs. However, you’ll need at least a 620 credit score to qualify, and income limits apply. Check out the Fannie Mae approved condominium list.
VA-approved condominium loans. Eligible military borrowers can purchase a condominium with no down payment with a loan guaranteed by the U.S. Department of Veterans Affairs (VA). Request a VA customized condo report for information about condos eligible for a VA loan guaranty.
USDA condominium loans. The U.S. Department of Agriculture (USDA) backs loans with no down payment, including condos in designated rural areas. A minimum credit score of 640 is required and income limits apply.