Some borrowers, especially first-time home buyers, are surprised to learn that FHA loan options include loans to purchase condo units in FHA-approved condo projects.
5. FHA Condo Loans Are For Condos On The FHA Approved List
Whether the condo you want to buy a unit in is already on the approved list, or needs to be added to it, the FHA condo loan is available to financially-qualified borrowers who have never owned a home before or are coming back to apply for a new home loan after purchasing in the past.
Borrowers who need to have a condo project added to the FHA list will be required to work with a participating FHA lenders who can apply to have the condo project added to it.
But there is one important factor about this process you should know-the requirements to get added to the FHA approval list depend on whether you’re looking at a property classified as condo unit or a site condominium.
4. FHA Condo Approval Processes Don’t Apply To Site Condos
HUD 4000.1 includes the FHA’s 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.”
Site condo projects are NOT required to be added to the FHA approved list. A property that meets the FHA definition of a site condominium requires no additional procedure by the lender with regard to a list of “FHA-approved” condo properties.
3. How The FHA Defines Site Condominiums
HUD 4000.1 defines site condos 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 mentioned above. Site condos can be processed like other FHA home loans and no approval list is needed.
2. Why Some Condo Units Can’t Be Approved For FHA Loans
If the condo owner’s association has any restrictive clauses in their bylaws or covenants (such as the “right of first refusal”) that prevent the borrower from freely selling the unit, the FHA loan cannot be approved.
Condo projects in certain types of natural disaster hazard zones may not be eligible, and there are basic FHA appraisal requirements that apply to most properties that may affect the loan. For example, being too close to a gas station, high noise zones that can affect the resale ability of the unit, or too close to high voltage power line easements.
State law and other factors may also apply.
5. Ask A Lender, Ask A Real Estate Agent
Not sure what condo projects are already on the FHA approved list? Ask a lender or a real estate agent to help you find suitable properties that don’t require additional steps to be added to the FHA list and start your search from there.