FHA condo loans are available for both condo units and site condominiums. But what’s the difference?
Many are surprised to learn that an FHA home loan is available for condo units, but are sometimes disappointed that the FHA condo loan requirements include being on or added to an FHA-approved condo project list.
Borrowers must work with their participating FHA lenders to have condo projects not on that list added to it, but the requirements are different depending on whether you’re looking at a condo unit or a property classified as a “site condominium”.
What’s the difference?
FHA loan rules in HUD 4000.1 require a condo project to be added to the FHA approved list if it is not already when the borrower chooses to buy. FHA loan rules were created with the knowledge that some condo projects are different than others, so HUD 4000.1 includes a specific definition of a condominium project:
“A Condominium Project refers to a multi-unit Property in which persons hold title to individual units and an undivided interest in common elements.”
“Common elements (areas) include underlying land and buildings, driveways, parking areas, elevators, outside hallways, recreation and landscaped areas, and other elements described in the condominium declaration. Common areas are typically managed by a condominium association.”
Among the reasons for having FHA approval for a specific condo project? Insuring that the condo owner’s association does not have restrictive policies that prevent the borrower from freely selling or transferring ownership of the condo unit purchased with an FHA mortgage.
But some condo projects are NOT required to be added to the FHA approved list, because they meet the FHA definition of “site condominium” which is described in HUD 4000.1 as follows:
“A Site Condominium refers to a project of Single Family, totally detached dwellings encumbered by a declaration of condominium covenants or a condominium form of ownership. They have no shared garages or any other attached buildings. Project approval is required for Site Condominiums that do not meet this definition.”
A Condominium project must be on the list of FHA-approved condominiums, says HUD 4000.1, “unless it meets the definition for a Site Condominium” as described above. And that’s the major difference-the nature of the site condo is different than a more “traditional” condo project.