How to buy a condo with an FHA-insured loan

Published on February 3, 2020

Shopping for a condo with an FHA-insured loan? Here’s a tip: don’t look at even one condo in a community that isn’t approved by the U.S. Department of Housing and Urban Development (HUD).

Since an estimated 90 percent of the U.S. condos communities are not FHA-approved, there’s a good chance that you could fall in love with a home only to find out that FHA won’t guarantee a loan on it.

Thankfully, after years of lobbying by the National Association of REALTORS®, many of the restrictions that have previously prevented buyers from purchasing condos with FHA-insured loans have been eased up significantly.  However, there are still some guidelines you’ll need to be aware of before you start condo hunting.

FHA requirements for condos

There are a number of reasons a community may be considered too much of a risk for it to qualify for HUD approval and most of them can be traced back to the homeowner association.

Some of the problems HUD considers too risky include:

A high number of rentals

Previously, HUD required at least percent of the units in a building be owner-occupied, or sold to owners who intend to occupy the units. After October 2019, that number has been reduced to 35 percent.

Too much commercial space

If part of what attracts you to the community is the Starbucks and grocery store on the bottom floor, ensure that the space devoted to these and other commercial purposes doesn’t exceed 35 percent of the community’s total square footage.

And the commercial portion of the project must be of a nature that is homogenous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.

If it doesn’t, the community won’t be HUD-approved and FHA won’t insure the loan for one of its condos.

Too many deadbeats

If too many homeowners aren’t up-to-date on their Home Owner Association (HOA) Dues, HUD won’t approve the community. How many is too many? Anything more than 15 percent of homeowners, delinquent for more than 30 days.

One individual owns too many of the units

Often, investors will snatch up multiple units in a community. Whether it’s one individual or a group of investors, if they own more than 10 percent of the units, HUD will take a closer look.

And for condominium projects with ten or fewer units, no single entity may own more than one unit within the project.

Too many lawsuits

HUD will check to ensure there is no outstanding litigation going on. Believe it or not, this is one of the more common problems that condo associations run up against when attempting to become HUD-approved.

These are just a few of HUD and FHA’s requirements for condos and they are always subject to change. You can find additional items at

Being approved has additional advantages

When buying in a managed community (one overseen by a homeowners association), the homebuyer is presented with a pile of paperwork to read and approve.

These documents include just about everything you need to know about the community, including:

  • CC&Rs, short for Covenants, Conditions and Restrictions. They let you know what you can and cannot do in the community, such as noise rules and pet restrictions.
  • The budget and other financial documents
  • HOA meeting minutes
  • Articles of incorporation
  • Bylaws
  • Rules and Regulations. These include anything not mentioned in the CC&Rs.

Make sure you do your due diligence when buying a condo with an FHA-insured loan. If you don’t understand anything in the paperwork, it’s a good idea to run it by a real estate attorney.

But the biggest advantage is that the HUD approval process weeds out communities with shady financials or other problems. And, communities must be re-certified every three years.

Find out if that condo you have your eye on is FHA approved on HUD’s website. Then, contact us for a private tour.

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