Can I buy a condo unit with an FHA home loan? It’s a common question, and the short answer is yes. But the FHA condo loan rules are a bit different than the rules for purchasing other types of property, so you should know what those differences are before exploring your options.
FHA Condo Definition
The FHA handbook, HUD 4000.1, has a specific definition of a “condo” that applies to all FHA condo loan transactions for single family home loans. According to page 150, “A Condominium Unit is a Property contained in a multi-unit project that has individually-owned Dwelling units, which may be either attached in one or more Structures or detached from each other, and is primarily residential in use”.
FHA Condo Loans For Approved Condo Projects
All condo units to be purchased with an FHA mortgage must be on or added to the FHA approved condo project list. You will need to work with your lender to determine if the condo project you’re interested in is on or needs to be added to the approved list.
The lender will need to do some additional work to have a condo project gets added to the approved list where applicable. Getting added to the approved list means the condo project must meet FHA minimum requirements including terms and conditions of any condo owner association agreements.
Why is this necessary? One example; FHA loan rules do not allow restrictive covenants, rules, or contracts that interfere with the FHA borrower’s ability to freely sell the property. If a condo project owner’s association agreements contain “rights of first refusal” which dictate how and when a condo owner may sell, that would be in violation of FHA minimum standards.
Site Condominium Rules
FHA loan rules define “site condos” as “Single Family detached dwellings encumbered by a declaration of condominium covenants or condominium form of ownership”. This type of dwelling does not have to be on the FHA approved condo project list to be considered for an FHA mortgage loan.
FHA Condo Loan Occupancy Requirements
FHA condo loan rules include an occupancy requirement; at least one borrower obligated on the mortgage note must occupy the condo unit as her primary residence within 60 days of loan closing as a condition of FHA loan approval.
FHA condo loans are for owner/occupiers only; no investment properties allowed. Remember the FHA definition of a condo as being, “primarily residential” in nature? That would definitely be a consideration at loan approval time. Borrowers are required to use the property to be purchased with an FHA mortgage as their primary residence whether that’s for a condo loan, manufactured housing, modular homes, etc.
Talk to your loan officer about FHA condo loans to learn more about how to buy a condominium with an FHA mortgage loan.