Federal Housing Administration condominiums are properties that can be purchased using FHA loans—or loans that are insured by the FHA. What requirements must these condos meet to be approved by the FHA? And where should you go to search for available properties? The answers to these questions and more are below!
What are FHA-approved condos?
FHA condos are simply residential properties that meet the specific requirements of the U.S. Department of Housing and Urban Development and can be purchased using an FHA loan. If you're looking to buy a condo with an FHA loan, you must choose from a list of complexes that have been fully vetted by the administration.
Note: The FHA is not a mortgage lender—it insures mortgage loans from approved banks and lenders. In turn, these lenders give loans to people who meet insurance standards. The FHA must reimburse the bank or lender for a portion if the loan defaults.
The types of condos eligible for FHA approval either contain at least two units; are detached or semidetached units; are manufactured housing; are row houses; or are walk-up, mid-, or high-rise units.
FHA-approved condo requirements
Due to the fairly rigid requirements imposed by the FHA, buyers are often left with a smaller pool of properties. In order to receive approval, interested communities must first submit a fair amount of paperwork. Then, they must be vetted by the FHA, and any recommended improvements must be made and reexamined before the building can be put on the approved list.
This year's full list of FHA condo requirements is extremely dense, but here are some that are commonly cited:
- The property must be fully completed.
- No more than 50% of the property can be used as commercial space.
- No more than 15% of units can have delinquent dues spanning more than 60 days.
- No more than 50% of the units can be investor-owned or used as rentals.
- At least 10% of the HOA's budgeted income must go toward a reserve account.
- The HOA must have enough reserve funds to cover capital repairs and replacements for at least the next two years.
- The property must be properly insured.
- The board of directors cannot have the power to approve or deny leasing.
Additional requirements cover factors such as being located within a reasonable distance of a well-traveled throughway and ensuring that all initial building is completed on the project before approval will be granted. Essentially, the requirements make sure that the property remains in good standing and will be desirable.
How to find FHA-approved condos
A real estate agent can help you find an FHA-eligible condo in your area through the multiple listing service.
You can also visit the HUD website to find FHA-approved condos through its search feature. Just enter your state and county to see a list of eligible condos.
However, it's not uncommon for properties to let their paperwork expire and, though they might appear on the list, you should do your own research before getting your heart set on a condo. Call the listing agent or community to make sure the property is, in fact, FHA-approved if you plan on financing it using an FHA loan.
First steps to take toward owning an FHA-approved condo
According to Brian Antonopoulos, an agent with Hughes Realty Group in Palm Beach, FL, the most beneficial step you can take toward getting a condo through an FHA loan program is to talk to an approved lender.
"Most lenders will have an up-to-date list of FHA-approved condos," he says. "Usually, the list is rather small, but that is always the best starting point."
The lender can also help you through the pre-approval process. That way, once you're ready to submit an offer on a property, you'll be able to provide the seller with proof that you can get financing.
You should also hire a real estate agent in your area who is experienced in dealing with this type of property. The agent will be familiar with the current FHA-approved condos in your area and can give you recommendations on which properties might be the best fit for you, based on your unique wants and needs.
courtesy of realtor.com