The Basics of Condominium Financing Using an FHA Mortgage

FHA is back in vogue today with the extreme tightening of underwriting guidelines for conventional financing.  FHA is much more liberal on credit score restrictions and generally provides a much lower monthly payment for those borrowers who are below a 700 middle credit score.  Additionally, FHA provides a number of features which are simply not available on conventional loans such as allowing borrowers with a fairly recent bankruptcy to obtain financing as well as to allow a non-occupant co-borrower to be added to the loan.

Today, the area where FHA probably shines the most though is in condo financing.  With a conventional loan, both Fannie Mae and Freddie Mac have made condo financing extremely difficult to obtain.  Additionally, just this month they began charging 0.75 points for any 20 or 30 year condominium loan where the borrower does not put down at least 25%.

Please note that not every condominium will qualify for FHA financing.  In the best case, the condo project that you are purchasing in will already be on the FHA approved projects list.  How can you determine this?  Simply follow the link below and slowly narrow down the search to determine if the condo you are looking at is on the list.

https://entp.hud.gov/idapp/html/condlook.cfm

If you find that your condo project is on that list, then you can stop there as you are in great shape.  If, however, the condo project you are looking at is not on the list, you do still have the possibility that the unit you are purchasing can receive a “spot approval”.  In order to make that happen, the FHA lender must certify that the condo project meets the eligibility criteria set forth by HUD.  Using this checklist: https://www.franklinamerican.com/wiki/_media/public_extranet/wholesale_forms_general/condo_fha_spot_approval_checklist.pdf?id=public_extranet%3Awholesale_forms_-_ma&cache=cache  the lender will perform an investigation on the unit in question.  If the lender determines that the condo does meet the criteria, the unit will then be eligible for FHA financing.

Here are a few of the major restrictions to obtaining a “spot approval”.

•  At least 90% of the units must have been sold
•  At least 51% are owner occupied
•  No single entity may own more than 10% of the units
•  If there are more than 30 total units, then no more than 10% of the units may have FHA financing
•  If there are 30 or fewer total units, then no more than 30% of the units may have FHA financing

In addition to the above, the unit in question must also meet the FHA requirements that are placed on any property - whether it be a single family, 2-4 family, or a condo.  The appraiser will make this determination when he inspects the property.

Feel free to call us if you have any questions at all about FHA financing, or any other financing needs.