May 28, 2020

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FHA Condo Loans: Owner/Occupancy Requirements

2015-32FHA loans include the option to fill out a loan application for condo loans. Borrowers can apply to purchase a condo unit as long as the condo project is either on the FHA approved list or is added to that list.

Recently we reported on the FHA’s change in rules for occupancy requirements for approval of condo projects. According to an FHA mortgagee letter, “In accordance with the passage of the Housing Opportunity Through Modernization Act of 2016 (HOTMA), the Federal Housing Administration (FHA) is required to provide guidance on the percentage of owner occupied units required to obtain condominium project approval.”

To be put on the approved FHA condo loan list, the project must meet specific requirements including an owner/occupier ratio. That ratio is addressed in that mortgagee letter as follows:

“FHA has historically set standards for condominium project approval where units have a high probability for success and has
required owner occupancy as a component of condominium project approval. Prior to implementation of the Housing and Economic Recovery Act (HERA) of 2008, the required owner occupancy percentage was as high as 80 percent, but was lowered to 51 percent.”

After HERA, the mortgagee letter says, the FHA adjusted the owner occupancy percentage, “to its current level of 50 percent for existing projects and 30 percent for Proposed, Under Construction (including existing projects less than 12 months old) or Gut Rehab Conversions.”

But now, FHA loan guidance for existing construction projects older than 12 months allows a lower percentage if the project meets certain requirements.

According to the FHA/HUD official site, “Existing projects (greater than 12 months old) with an owner occupancy percentage of at least 35 percent and less than 50 percent are eligible for approval under the following circumstances and subject to the following conditions:

-Applications must be submitted for processing and review under the HUD Review and Approval Process (HRAP) option.
-Financial documents must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20 percent of the budget;


-No more than 10 percent of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments (as defined in Section 2.1.5 of the Guide;


-Three years of acceptable financial documents must be provided.

Talk to a lender about FHA condo loans and how these rules might affect your choices of a condo unit and/or loan application

Bruce Reichstein - FHA News Author

By Bruce Reichstein

November 10, 2016

Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.

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About was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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