FHA loans have been providing a great finance opportunity for buyers to get into our very expensive market especially since the down payment requirements can be as low as 3.5%, interest rates have been in the low 5% range and the seller can pay all closing costs.

Guidelines are more straight forward with single family homes. Things become a bit trickier if a condo is not FHA approved.

Spot approval allows one to bypass the 6-8 week FHA approval process & involves the mortgage broker and escrow officer reviewing HOA documents during one’s contingency process.

The building does have to be 4-units or more.

I’ve been working with several FHA buyers and currently have a condo in contract that was spot approved. So far, so good….

Here is the rundown of guidelines for getting FHA approval on a condo.

1. The legal documents of the homeowners association do not contain a right of first refusal or restrictive covenant.

2. The unit is part of a condominium regime that provides for common and undivided ownership of common areas by unit owners.

3. The project is not a cooperative or Planned Unit Development.

4.
Circle one:
(A) The project is NOT a conversion of previous rental housing.
(B) The project IS a conversion of previous rental housing and the
conversion documents were recorded more than one year ago.
(Recorded conversion docs attached). Ref 4150.1, Section 11-3D

5. The project, including the common elements, and those of any Master Association, are complete, and the project is not subject to additional phasing or annexation.

6. There are no special assessments pending.

7. No legal action is pending against the condominium association, its officers or directors.

8. The common areas have been under the control of the homeowners association for at least one year.

9. At least 90% of the total units in the project have been sold.

10. At least 51% of the total units in the project are owner-occupied.

11. There are no adverse environmental factors affecting individual units or the project as a whole.

12. No single entity owns more than 10% of the total units in the project.

13.
Circle one:
(A) The units in the project are held by fee simple ownership.
(B) The units in the project are held under a leasehold agreement.

14. The owners association has a $1 million liability policy.

15. General maintenance level of common elements is acceptable and there is no deferred maintenance.

16. The owners association has a reserve plan and a reserve fund, separate from the operating account that is adequate to prevent deferred maintenance.

The amount of the fund is $_______________ as of ________________.

17. No more than 10% of the units are encumbered by FHA-insured mortgages
(20% for projects w/ 30 units or less).

How verified: ____________________
_________________________________Total Units in Project: ______________.
(Note: The 10% restriction does not apply when the ownership of less than 3 units
would disqualify an otherwise eligible project. Projects < 4 units are ineligible.)

18. The project has never been submitted to HUD for approval as an FHA-approved project.

If you are shopping for a condo and going with FHA financing the following  link is one way to check if the project is on the FHA condo approved list. If it isn’t then it will require looking at the possibility of spot approval. It’s ideal to determine these details prior to writing an offer & especially prior to paying for inspections.