FHA loans are popular among home buyers for several reasons. They allow for a smaller down payment, and the qualification process is generally easier when compared to a ‘regular’ conventional mortgage. FHA loans can be used for condos as well as detached homes.
But condo buyers may have to jump through additional hoops when using this program. Specifically, they must ensure the condominium project they are interested in is on the FHA approved condo list.
The Department of Housing and Urban Development (HUD) has a specific and extensive list of criteria for condominium projects. Condos must go through the FHA certification process before they can make it onto the approved condo list.
Here’s what you need to know as a home buyer: You can only use an FHA loan to buy a condo if the development appears on the HUD/FHA approved condominium list.
You can find this list on the official HUD website. Here is the web address:
The search tool allows you to search for condos by name, ID code, zip code, or city name. You can also view the current status of a condominium project that is undergoing certification, but has not yet approved.
Condo Approval Process Outlined in Mortgagee Letter 2009-19
The FHA condominium approval process is outlined in HUD Mortgagee Letter 2009-19. When you see how extensive this document is, you’ll understand why some condo owners and associations have decided to skip the FHA certification process. Some feel that it opens them up to too many legal liabilities, and imposes too many complicated rules. With that being said, there are plenty of condominium owners and associations who realize the value of certification.
In addition to explaining the certification and approval process, Mortgagee Letter 2009-19 also provides a list of projects that are not eligible for FHA certification. They are:
- Condominium hotel or “condotels”
- Timeshares or segmented ownership projects
- Houseboat projects
- Multi-dwelling unit condominiums [i.e. more than one dwelling per condominium unit]
- All projects not deemed to be used primarily as residential
HUD Changed the Rules in 2012; Easier to Get Approved
In 2012, HUD amended the rules for FHA approved condos. These changes made it easier for condominiums to get onto the approved list. Here’s a summary of the most significant changes:
The previous rules stated that no more than 15% of a condo development’s units could be more than 30 days delinquent on condo association dues. In 2012, the rule was changed to 60 days past due. This makes it less restrictive for condominium developments that undergo the certification process.
Mixed-use developments and “live/work” projects can now apply for FHA certification, as long as they meet certain requirements regarding the ratio of residential and nonresidential space.
This rule change is explained in HUD Mortgagee Letter 2012-18.
Here’s a quote from Mortgagee Letter 2012-18 regarding live/work projects:
“The condominium declaration must require that the work (non-residential) space per unit cannot exceed 25 percent of the unit’s total floor area. The non-residential work space may not exceed 25 percent of the project’s total floor area.”
Eventually, these rules will lead to more condos being approved for FHA financing. This is good for buyers, because it gives them more choice when shopping for a home. And it’s good for the condominium projects because it leads to more potential buyers.
Summary of key points:
- FHA loans are popular among home buyers because they offer smaller down payments and easier approval than conventional mortgages.
- Home buyers can use FHA loans to buy detached homes as well as condo units.
- Home buyers must check the HUD/FHA approved condo list to ensure the condominium project they are interested in has undergone certification.
- HUD maintains a specific set of criteria for condominium projects.
- The certification process underwent some changes in 2012. The current certification process is less restrictive than in the past.
- Mixed-use developments and live/work communities can now apply for FHA approval.
- You can find out if a particular condo has been FHA approved by visiting the approval list on HUD’s website.
Editor’s note: We publish FHA-related articles and tutorials on a weekly basis. We have an extensive library of information relating to this loan program. You can use the search box at the top of this page to learn more.