FHA loans level the real estate playing field for low-income homebuyers. Unfortunately, if you have your eyes on a condo, you might be in for a challenge. If the condo of your dreams isn’t FHA approved, should you give up or move forward?
It might be worth your while to persist. Did you know that if the condo you want doesn’t hold that all-important FHA condo ID number, you can still initiate an approval? Keep those condos on your wish list because today we’re going to tell you everything you need to know to secure an FHA loan for a condo.
What Is an FHA-Approved Condo?
Homebuyers cannot use an FHA loan to purchase a condo unless the unit or community has been through a strict approval process. To become approved by the FHA, condominium communities must:
- Complete the HUD Review and Approval Process (HRAP).
- Undergo an appraisal as a part of the HRAP.
- Receive a condo ID number to identify as an FHA-approved condo.
What if you fall in love with a condo that isn’t FHA-approved? You might be able to initiate a single-unit approval, also known as a “spot loan.”
A spot loan is awarded to a buyer to purchase an individual unit. Although the entire condo community must meet basic eligibility requirements, the approval applies only to a single unit.
How Do Condos Become FHA-Approved?
To become FHA-approved, condo communities must possess the following characteristics:
- The community must be completely constructed. If it’s not, the current phase must be completed.
- At least 50% of the community’s units must be occupied by their owner.
- Up to 35% of the building can be used commercially.
- The HOA must hold at least 10% of the budget in a cash reserve account.
- At least 85% of the units must be up-to-date on their HOA dues.
- If the community has 10 or more units, up to half of them can be FHA-insured. If the community has less than 10 units, a maximum of two units can be FHA-insured.
- The community must undergo a recertification process every three years to keep its FHA-approved status.
Qualifying for an FHA-Approved Condo
Do you have your sights set on an FHA-approved condo? Here are the eligibility requirements that you’ll need under your belt:
- Borrowers must have a minimum credit score of 500, although some lenders might have a higher threshold.
- Depending on your credit score, prepare to bring a down payment of at least 3.5% to closing.
- Borrowers can have a DTI of as much as 57%, although 45% is a better goal.
- The FHA-approved condo must be the borrower’s primary residence.
- Borrowers must be prepared to foot the bill for mortgage insurance.
Contact Us Today!
Is searching for an FHA-approved condo making your head spin? Contact MortgageDepot today to learn more about finding an FHA-approved condo in today’s real estate market.
Connect with one of our loan consultants for more information.