FHA-Approved Condos: Requirements & How to Find Them

Purchasing a condo can be a great alternative to a detached home due to lower upfront costs, fewer responsibilities, and a variety of on-site amenities. Plus, you may be able to qualify for an FHA loan on a condo with just 3.5% down so long as you have a credit score of at least 580.

However, only FHA-approved condos are eligible for agency financing, and not all properties choose to participate in the approval process. Thankfully, rule changes in recent years now allow prospective buyers to request single-unit approval on condos they'd like to purchase.

Key Takeaways

• You can get an FHA loan to purchase a condo with 3.5% down, but it must be on the FHA-approved list.

• Condominium projects can be approved directly by the FHA (HRAP) or an authorized FHA lender (DELRAP).

• Condos in projects not on the list may still qualify for funding through single-unit approval.

• Approval requires the property to meet FHA standards for cash reserves, insurance, and ownership and occupancy.

• Condos that aren’t FHA-approved can still be eligible for financing through other types of loans.

Why Does the FHA Approve Condos?

Condominium projects must be approved by the Federal Housing Administration for units to be eligible to be purchased with FHA-backed loans.

Since the financial health of the condo association can impact the value of individual units, the FHA wants to ensure that they’re only backing mortgages on properties that meet their standards.

Generally speaking, the FHA approval process involves reviewing whether a condo has:

• Appropriate funds in reserve

• Sufficient insurance policies

• A healthy ownership and occupancy composition

Because of the FHA’s relatively strict requirements, the majority of condos are not approved either because they do not qualify or have not gone through the approval process.

FHA Condo Requirements

For a condo to be eligible for FHA financing, the project has to meet the following requirements:

• Construction must be complete, and the subject phase of the project must be fully ready for occupancy.

• No more than 50% of units can be secured by FHA loans.

• No more than 15% of units can be 60 days or more behind on association dues or special assessments.

• At least 50% of units must be owner-occupied. Condos at least 12 months old may be eligible with 35% owner occupancy so long as no more than 10% of units are behind in dues or assessments.

• Condo associations must have a stable operating income with no more than a 15% decline in revenue over the past two years.

• 10% of annual unit assessments must be held as cash reserves with provisions to maintain this level unless an approved reserve study specifies a lower requirement.

• No individual owner can own more than 10% of all units. For condo projects with fewer than 20 units, individual ownership is limited to a single unit.

• The property must carry hazard insurance that fully covers the replacement cost of all units and insurable common elements.

• Commercial and non-residential spaces cannot comprise more than 35% of the condo project’s total square footage.

• The condo cannot operate as a hotel (condotel) or require owners to enter a rental pool.

• The sale of individual units cannot be dependent on condo association approval.

Requirements for All FHA Loans

In addition to the condo-specific requirements, there are some general guidelines that all FHA borrowers need to meet:

• You must be purchasing your primary residence. Second or vacation homes and investment properties are not eligible for FHA financing.

• Borrowers will need a credit score of 580 to qualify for a 3.5% down FHA loan. Applicants with a score of 500+ may still be eligible for funding with 10% down.

• Your debt-to-income ratio can be as high as 50%. However, a lower percentage will likely increase your approval chances and reduce your interest rate.

• FHA loans all come with an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan balance. You'll also be responsible for an ongoing annual mortgage insurance premium (MIP) of 0.50% to 0.75%, divided equally among your monthly payments on most loans.

The FHA Condo Approval Process

To get an entire building approved, typically the developer, condo association, or their management company completes the FHA Condominium Project Approval Questionnaire (HUD-9992) and submits it with the required accompanying documents. Individual lenders can also submit a condo project for approval.

Condos seeking FHA approval must undergo either the HUD Review and Approval Process (HRAP) or the Direct Endorsement Lender Review and Approval Process (DELRAP).

HRAP involves submitting the Condominium Project Approval application directly to the FHA. This process is open to all prospective condo projects.

DELRAP allows individual lenders certified by the FHA to assess and review properties for approval. Some projects, such as those recently converted into condos or that have had major financial issues, may not qualify for DELRAP.

Once an application for condo approval has been processed, the FHA will issue a 7-digit condo ID and 3-digit submission number that can be referenced and searched through the FHA condo database.

However, getting a condo project approved by the FHA through either method can be time-consuming and costly. As such, many condo associations do not apply for FHA approval or renew their status when recertification is due.

Single-Unit Approval

Due to the small number of condos that opt-in to the full approval process, the FHA changed its rules in late 2019 to allow single condo units to be approved even when the entire condo project is not.

To be eligible for single-unit approval, a condo project must have a minimum of five units and be completed in its current phase.

The subject unit must also have been occupied previously or received a certificate of occupancy more than 12 months before.

Single-unit approval requires at least 35% owner-occupancy, with no individual owner having title to more than 10% of units. For properties with fewer than 20 units, individual ownership is limited to one unit.

How to Check for Approval

The US Department of Housing and Urban Development maintains a comprehensive list of all FHA-approved condo projects. You can search the approved condo database by property, city, or zip code.

You can also search the list by state or county and see projects that have expired, been rejected, or are otherwise not currently approved.

What to Do Based on Status

The FHA condo database displays the current status of all projects on its list, with entries labeled as:

• Approved

• Approved (expired)

• Rejected

• Withdrawn

Condo projects not currently listed may still be pending approval if an application has already been submitted.

If a condo is listed as expired, it may become eligible again with a full HRAP or DELRAP review.

Projects rejected or withdrawn under HRAP within the past 12 months will be reconsidered if they have corrected their reason for being previously denied. Projects rejected or withdrawn more than 12 months prior will need to undergo a full review.

Projects that have been rejected under DELRAP must go through a full HRAP review to determine eligibility.

Note: Properties rejected for reasons that the FHA considers "significant issues" will require a full HRAP review regardless of how long it has been since the adverse determination.

FHA Appraisals for Condos

All FHA loans – except for the streamline refinance program – require borrowers to obtain a current property appraisal. Even when purchasing an FHA-approved condo, you'll need to have an appraisal completed.

While FHA-approved condos have been vetted for the financial health of the project as a whole, individual units must still meet basic FHA property requirements regarding health and safety standards.

Pros and Cons of FHA-Approved Condos

Purchasing an FHA-approved condo can be a savvy decision for some homebuyers, but doing so isn’t without its downsides.

Pros of FHA-Approved Condos

• Lower Credit Score Requirements – FHA-approved condos can be purchased with a credit score as low as 500 with 10% down. Borrowers with a credit score of 580 or higher only need 3.5% down to be eligible for a loan.

• Less Maintenance and Upkeep – Buying an FHA-approved condo usually means worrying less about maintenance and upkeep than a single-family home. The condo association typically handles common area maintenance and general repairs, with owners only responsible for their individual units.

• Better Buyer Protections – FHA-approved condos have been vetted to ensure that the project adheres to minimum insurance and financial accountability requirements. Non-approved condos may not meet the same buyer-protection standards.

• More Affordable Purchase – While every property differs, FHA-approved condos are typically more affordable than a detached single-family home. This lower upfront cost can make it easier for first-time homebuyers to purchase a condo when they might have trouble qualifying for a standalone residence.

Cons of FHA-Approved Condos

• Fewer Purchase Options – Very few condo projects are currently FHA-approved, and while you can apply for single-unit approval, the property still needs to meet the FHA’s minimum requirements. Purchasing an FHA-approved condo leaves you with fewer options than other types of financing.

• Primary Residences Only – You can only use an FHA mortgage to purchase a condo if it will be your primary residence. If you plan to keep it as a vacation home or use it as a rental, you will need a different type of loan.

• Ongoing Association Dues – Condos generally have ongoing association dues paid monthly, quarterly, or annually. These fees fund the project's budget and pay for expenses like insurance, repairs, and common area maintenance.

• Lower Loan Limits – FHA loans are subject to lower limits than other types of financing. For most parts of the country, the 2024 limit for an FHA-approved condo is $498,256. For comparison, conventional loans have a standard limit of $766,550, while VA mortgages have no maximum and are only limited by your repayment ability.

Will All Condo Associations Accept FHA Loans?

No, you will not be able to use an FHA loan with all condominiums. Few condo projects make the FHA list because the requirements to qualify can be challenging to meet, and many eligible condos simply don't participate because of the costly and lengthy approval process.

Plus, condo associations must recertify every three years to remain current. With FHA loans accounting for only around 13% of all purchase mortgages, associations often don't consider it worthwhile to spend the time and money to get or stay on the list.

Alternative Condo Loan Options

Unsure if buying an FHA-approved condo is the right decision? Here are some other options for purchasing a condo without applying for an FHA loan.

Conventional Condo Loans

Conventional mortgages are available to borrowers with a credit score of 620 and higher. First-time homeowners and lower-income applicants may be eligible for a 3% down condo loan, while other borrowers will need 5% down.

Well-qualified borrowers generally pay less per month with a conventional loan compared to one backed by the Federal Housing Administration. Condos will still need to undergo a project review, but conventional standards are more relaxed than FHA standards.

VA Condo Loans

Eligible borrowers can use a VA loan to purchase a condo with 0% down. Still, the process is similar to financing with the FHA in that all condos must be approved by the VA to be eligible. Not all FHA-approved projects will be on the list and vice-versa. However, if you qualify for a VA condo loan, your interest rate and long-term costs will likely be cheaper than an FHA mortgage.

Home Equity Loans & HELOCs

If you plan to purchase a condo to use as a second home or investment property, you are not eligible for an FHA loan. You can only buy an FHA-approved condo if it will be your primary residence. One alternative to fund your purchase is to tap into the built-up equity in your current property through a home equity loan or line of credit.

Buying an FHA-Approved Condo

Buying an FHA-approved condo can be an excellent way for borrowers with lower credit or a small down payment to obtain affordable housing. However, not all condos qualify for FHA financing, and applying for single-unit approval will delay your purchase while the condo is being reviewed.

To find out if the property you’re considering is FHA approved – or if you have any other funding options for your condo purchase - browse the current mortgage rates and apply with an FHA lender experienced in condo loans.