What Is An FHA-Approved Condo?

Buying a home with a conventional mortgage typically requires a hefty down payment and a credit score of at least 620. For first-time home buyers, those with little saved for a down payment or those with a lower credit score, there’s a popular alternative: the FHA loan.

The FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). In some cases, it can be challenging to find a home that qualifies for an FHA loan, especially if that home is a condominium.

Condos must be FHA-approved, before you can secure this type of financing. FHA-approved simply means that the property met the set guidelines and passed the FHA approval process.

FHA-approved condos meet the property requirements of the U.S. Department of Housing and Urban Development (HUD) and can be purchased using an FHA loan.

Condominiums can be great properties for first-time home buyers, but the condo needs to meet FHA approval requirements in order for borrowers to qualify for an FHA loan. The following are qualifications for receiving an FHA mortgage:

• Credit score: You must have a minimum credit score of 580.
• Down payment: Your down payment should be at least 3.5% of the purchase price.
• Debt-to-income ratio (DTI): Your maximum DTI can be as high as 50% or lower in many cases.
• Additional payments: If they’re not rolled into the loan, you may be responsible for paying closing costs and the upfront mortgage insurance premium (MIP).

Finding an FHA-approved condo isn’t always easy, but the HUD’s official listing is a good place to start. By inputting just a few pieces of information, you can see if the condo you wish to sell or purchase is approved or find a list of FHA-approved condos in a specific area.

You won’t need to fill in every box to get results, but there are two pieces of information required to get the data you seek.

First, you must input the state. Then, you must choose “Approved” in the status box if you only want to see FHA-approved condos. That’s all the information that’s required.

Note that the less information you provide, the more results you’ll get. This can be a good thing if you’re looking in multiple places. However, it can make your search more cumbersome if you have a specific area in mind.

Once you fill out all of the information, click “Send” to see a list of FHA-approved condos in the specified areas.

Another reliable option is to work with a real estate agent who can navigate the multiple listing service to find FHA-approved condos in your area.

If the condo isn’t yet approved, the approval process can be pretty straightforward.

The first step in the approval process for getting a condo or complex FHA-approved and able to accept FHA mortgages requires the completion of the HUD Review and Approval Process (HRAP) or a Direct Endorsement Lender Review and Approval Process (DELRAP).

After the paperwork, a condo must then go through an FHA appraisal to confirm it’s up to FHA standards and meets all requirements.

The approval process can vary depending on a few factors, including the following:

• It depends on whether the building is old or new, as older buildings may take longer to be approved.
• How quickly documents are received by the FHA can affect the speed of the process.
• It depends on how eligible the condo complex is for FHA approval.
• The FHA’s current caseload could cause delays in the approval process.

Typically, approval takes about 2 – 4 weeks. Once the condo is FHA-approved, it must undergo recertification every 3 years.

To get approval, a condo development must meet the following FHA requirements:

• The property is required to be fully completed. Condo projects still in the process of being built won’t qualify.
• The property and units must be insured for hazard, flood, liability and other insurance required by state law and HUD.
• At least 10% of the homeowners association (HOA) budget must be in a cash reserve.
• There can be no more than 15% of units that are 60+ days delinquent in their HOA dues.
• No more than 50% of units can be investor-owned or used as rentals.

Even if your condo complex doesn’t have approval, you may still be able to get your individual condo approved.

Under new HUD rules, an individual condo unit can be FHA-approved even if the rest of the development isn’t. This Single-Unit Approval is sometimes referred to as a “spot approval.” The allowance originally ended in 2010, but the FHA brought the process back in 2019.

These “spot approvals” are decided on a case-by-case basis and still require an FHA appraisal. You must work with an FHA-approved lender, and this lender must work with the complex’s management in filing the proper paperwork to gain approval.

Keep in mind that while the complex doesn’t need to have FHA approval, the complex still needs to meet FHA standards for your individual unit to get Single-Unit Approval.

The requirements for spot approval include:

• In a building of 10 units or more, no more than 10% of the units can be FHA-insured.
• In a building of fewer than 10 units, no more than two units can be FHA-insured.
• At least half the units must be owner-occupied.
• No more than 50% of units in the complex have financing through an FHA-insured mortgage.
• No more than 35% of the square footage can be dedicated to non-residential use.

If you’re selling your condo, you might wonder if yours is FHA-approved. Here are the types of condo projects that are FHA-eligible:

• Residential properties
• Properties containing two or more condo units
• Properties featuring detached or semi-attached units
• Row homes
• Walk-ups
• Mid- or high-rise units

While these properties are eligible, it doesn’t mean they’re approved. To know if your specific development or unit is FHA-approved, consult your complex’s developers or a real estate agent. Of course, one of the fastest, easiest ways to see if you have an FHA-approved condo is to check out the U.S. Department of Housing and Urban Development (HUD)’s official list online.

If your condo isn’t FHA-approved, you can’t buy it with an FHA loan or sell it to a buyer with an FHA loan. You may be able to get your complex approved or receive a spot approval for your individual unit. However, in both instances, the complex must meet FHA standards.

This is important to keep in mind when selling or buying a home or condo – especially when you’re a first-time home buyer. Connect with one of our Home Loan Experts to help you better understand FHA loans, the FHA approval process and how to navigate the real estate market as a first-time home buyer.