September 9, 2019
The FHA and HUD announced changes to FHA condo loan approval policy in August of 2019, opening the program up to condo loans in condominium projects that have not been added to the FHA approved list.
A Final Rule detailing the program changes was published, but in the interim between revising the FHA Single-Family Home Loan program handbook, HUD 4000.1, the FHA and HUD have published rules to manage the new rules.
According to an FHA mortgagee letter published on the FHA official site, “FHA systems will be enhanced in the future to permit the issuance of case numbers in unapproved projects” basically from the time the final rule became effective (mid-August 2019) until the FHA and HUD rules and systems are fully updated with the new changes.
What is the interim solution offered by the FHA and HUD until then?
Revised project approval rules for condo units that are NOT currently on the FHA approved list will include a “single-unit approval” process which is said to “allow for obtaining FHA-insured financing on a Unit in a Condominium Project that is not FHA-approved if the project meets a set of eligibility requirements.”
A press release at the HUD official site states that under the final rule, HUD is permitted to “suspend the issuance of new FHA case numbers if the number of FHA-insured mortgages exceeds the established maximum insurance concentration”.
Single-Unit FHA Condo loan approvals are restricted to 10% of the total units within a Condominium Project.
HUD condo loan rules state that for Condominium Projects with “fewer than 10 Units, the number of FHA-insured Mortgages cannot exceed two”.
Remember, these rules are only for condo units in projects not previously FHA-approved.
Some borrowers want to know what steps they are required to take in cases where they want an FHA condo loan but aren’t sure whether the condo project is already on the approved list, needs to be added to it, or if the new FHA loan rules permit the purchase of a condo unit in a given project.
The fact is, the FHA condo loan process requires additional steps from the lender but the borrower is basically unaffected by the basic FHA loan rules in this area.
Lender requirements, state law, and other variables may factor in when it comes to what efforts might be expected from the borrower to get a condo unit or condo project approved for an FHA loan, but in general FHA loan rules state it’s the lender who has to complete additional requirements for a Single-Unit condo approval.
Remember, first-time home buyers and experienced home owners alike can apply for an FHA condo loan. There is no restriction on condo loans other than the typical FHA and lender credit standards that must be met and FHA condo loans are not need-based or have an income limit.