September 21, 2011
Some FHA loan applicants are surprised to learn that FHA loans are available for condominiums. A condo, by definition, is a building that offers titles for individual units within the common structure. The FHA has rules for condo loans, including a requirement that the condo be on a list of projects approved by the FHA.
Some building owners decide to convert their property into condominiums so they can sell the individual units. The FHA will consider such conversion projects for approval provided the condo units meet FHA standards. Such standards include a “one unit, one residence” requirement; each unit must be a separate entity and must be sold and occupied as such.
FHA loan applicants looking for condo projects often wonder if the FHA will insure condo units in a conversion project that has not been completed yet.
According to the FHA official site, “Conversion to condominiums occurs in those projects which involve changing the title of an existing structure generally under one title, to property that is separated into units so that the title to most units can be held separately. In the event that FHA is insuring a mortgage on a unit and an undivided interest in the common elements on a project undergoing conversion, remodeling or rehabilitation, the entire condominium project, including the common facilities must be 100 percent completely built before any mortgage may be endorsed.”
Part of the reason for this has to do with FHA condo standards–if the unit for sale in a finished conversion project can’t meet minimum property requirements for example, such a situation could put the borrower’s investment at risk, or even his or her safety. The FHA also requires a fully finished project to insure the entire property meets FHA requirements, not just individual units. The overall condition of the rest of the project could affect the resale value of the unit sold with an FHA insured mortgage.
FHA rules require a condo project to be in compliance with applicable state law, “including good standing with the State, and with all other applicable laws and regulations.”
The FHA rules add, “The condominium project must be primarily residential, contain at least two (2) dwelling units and can be detached, semi-detached, a row house, a walk-up, mid-rise, high-rise, including those with or without an elevator, or manufactured housing.” There is no way to determine whether a condo conversion project meets basic requirements until the work has been declared complete, hence the rules mentioned here about condo conversion.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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