In recent years, condos and FHA have not mixed well. If you mentioned getting a condominium complex FHA approved, everyone cringed. Honestly, the FHA condo approval process can be difficult and time consuming for all involved. Especially the fact that the whole complex had to meet FHA lending requirements and that means a ton of paperwork and restrictions. You can easily tell how tough it is by searching for FHA approved condos. Notice how few condos are approved. But, FHA has announced that it is loosening FHA condo approval guidelines. That’s right! Effective October 15, 2019, the rules change for the better!
Why Buy a Condo?
Sure, there are a lot of people that want a yard to mow and no one living right next to them. Yet, there is a growing population that want convenience, low maintenance, and amenities. That’s where condo living can be the solution. Typically, condos do not require the individual owner to keep up the lawn or exterior of the building. Although when it comes to smaller 2+ unit condos, the few owners work out the maintenance of common areas together. Furthermore, condos often provide more affordable living compared to buying a stand alone single family home.
Generally, living in a condo means coming home from work or play and just living. Thus, not working in the yard or painting the house. Just pay your HOA dues, follow the rules, and have more time for other things you enjoy. Condo living varies greatly as one could own a condo at the beach, mountains, or in the city. Buyers can be in any age range as well. Young, middle age, or retirees can appreciate the low maintenance of owning a condo.
Buying a Condo as a Primary Residence, Second Home, or Rental Property
First of all, FHA only lends on a primary residence. So, if looking to purchase a condo for a primary residence, FHA can be a great option for low down payment, flexible underwriting, and great interest rates. But, remember it must have FHA condo approval! Depending on the area, condominium complexes can have a varying mix of owner occupants, vacation use, or rentals. For loan approval, lending agencies such as FHA like to see a lower rental occupancy percentage. Typically, beach areas include a higher number of vacation and rental properties. Where condos in larger cities tend to have a higher primary residence occupancy rate.
If looking to purchase a condo as a second home or investment property, then look to our conventional loan products. Owning a condo as a vacation property or rental does have the advantage of low upkeep.
New FHA Condo Approval Guidelines
Starting 10/15/2019, the following are new rules to help FHA condo financing much easier. An individual condo unit…
- In a building of 10 units or more may be eligible for spot approval if 10% or less are FHA insured
- In a building with less than 10 units, 2 or less units can have FHA insurance
Other FHA Condo Approval Enhancements
- Allowing more mixed use properties (properties that are residential and commercial) – up to 35% dedicated for non-residential use
- Extending recertification deadline to 3 year instead of 2 years
- 50% owner occupancy requirement – At least 50% of the complex must be owner occupied
- Insuring up to 50% of units in a condo complex
With these enhancements, FHA expects the number of approved condos to expand up to a potential 60,000 more per year! So, that’s a huge improvement over the very low number of condos listed on the FHA approved list.