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Requirements for FHA Approved Condos

FHA condo requirements

Wondering if you can use an FHA loan to buy a condo? The answer is yes. But not just any condo is eligible for a government-backed mortgage. The condominium project must meet the U.S Department of Housing and Urban Development (HUD)’s eligibility requirements and be included on the FHA’s approved condominium project list.

This article will help you figure out how to find an FHA-approved condo, the benefits of buying an FHA-approved condo and how to get a condo FHA approved.

FHA-approved condo requirements

FHA-approved condos must meet specific HUD requirements outlined in their Condominium Project Approval and Processing Guide. The list of conditions is pretty extensive, but in general, an eligible project must:

  • Be in compliance and good standing with state and local laws and regulations
  • Contain at least two dwelling units
  • Have no more than 25% of the property’s total floor area used for non-residential or commercial purposes
  • Have no more than 10% of the units owned by one investor or entity
  • Have no more than 15% of the total units more than 30 days past due on their condo association dues payments.
  • Allocate at least 10% of their budget to a reserves account to be used maintaining the common areas
  • Carry adequate hazard, flood, liability and other insurance.

Essentially, these requirements are designed to ensure that the property is adequately maintained and will remain a desirable place to live.

Benefits of buying an FHA-approved condo

Purchasing an FHA-approved condo combines the relaxed requirements of an FHA mortgage with the low maintenance benefits of condominium living.

Benefits of FHA loans:

FHA loans are designed to promote homeownership. Because they are insured by the federal government, FHA loans typically have more flexible lending requirements that make it easier for people to qualify.

  • Lower minimum credit scores: Many other loan programs require borrowers to have a credit score of 620 or above. FHA loans are available to borrowers with credit scores as low as 500.
  • Lower down payments. Borrowers can get FHA loans with down payments as low as 3.5%.
  • Seller-assisted closing costs. Many first-time homebuyers have difficulty saving up for a down payment and closing costs. If the seller agrees, an FHA loan allows the seller to assist with up to 6% if closing costs. Conventional loans allow sellers to contribute no more than 3% toward closing costs, unless the buyer is putting at least 10% down.

Barry Richards, a Realtor with EXIT Realty Garden Gate Team in the Nashville, Tenn. area, said condos are among the most affordable housing options for young professionals and couples.

“With low [housing] inventory, these buyers need to be able to pay their own closing costs to make competitive offers,” Richards said. “That makes FHA’s low down payment requirements very attractive.”  With a low down payment requirement, that will free up more of your cash for closing costs.

Benefits of buying a condo vs. a house:

  • Low maintenance. Condos are lower maintenance than single-family homes. The division of responsibility between the condo association and the condo owner varies, but typically the condo association takes care of exterior maintenance like painting and roofing as well as common area maintenance like landscaping and snow removal.
  • Amenities. Depending on where you buy, your condo may provide access to amenities such as a pool, fitness or spa facilities, playgrounds, or clubhouses conducive to entertaining guests. Upkeep of these amenities is typically included in your condo association dues.
  • Lifestyle. Many condos are located in urban areas with shops, restaurants and other businesses nearby. If you live and work in a particularly walkable city, you may be able to forgo the expense of owning a car.

Whether you are planning on using FHA financing or not, buying an FHA-approved condominium may give you a wider range of potential buyers when it comes time to sell.  Without FHA approval, you lose possible buyers who depend on the low down payments and flexible underwriting requirements offered by FHA loans.

“Whether they are using FHA financing or not, I point out the value of buying certified properties,” Richards said. “However, if property management does not take steps to maintain certification, then it may not be in place when it is time to resell.”

How to get a condo FHA approved

If the condominium does not already appear on the FHA-approval list, an application can be submitted by the builder, developer, association, management company, project consultant or an attorney acting as an agent for one of the parties mentioned above. Applications received directly from buyers, sellers, homeowners and realtors generally won’t be processed.

Detailed submission information is included in the Condominium Project Approval and Processing Guide, but generally consists of:

  • A cover letter
  • An applicable checklist (Appendices F-1 through F-3 of the guide)
  • A copy of the current year budget for the association
  • A current year balance sheet that is less than 90 days old at the time of submission
  • A copy of the Income and Expense statement for the project
  • Bank statements may also be requested
  • If the project is proposed or under construction, the application must include a Phase I Environmental Site Assessment (ESA)
  • If there is a change in ownership, the FHA must be notified of the change and receive copies of all legal documents related to the ownership change
  • Information on any special assessments, including an explanation of the assessment’s purpose, when the assessment is required to be paid, and whether it affects the value or marketability of any of the property or any of its units
  • Information on any pending litigation including the reason for the litigation, anticipating settlement or judgment date, whether the project has sufficient insurance to pay out the settlement or judgment without impacting its financial stability and whether the legal action could impact owners

For any condo projects that are proposed, under construction or going through a conversion, the submission must also include:

  • Builder’s certification of plans (Form HUD-92541)
  • Builder’s warranty (Form HUD-92544)
  • Building permit
  • Final certificate of occupancy
  • 10-year warranty
  • Inspections

Approvals expire two years from the date of placement on the list of approved condominiums, so the owner or association must prove they are in compliance with all eligibility requirements every two years to maintain their status on the approved list.

“Many condos received FHA certification when they were first marketed but have since allowed it to lapse,” Richards said. “It’s a common misconception that once the FHA certification lapses, it can’t be restored.”

But Richards said he’s been successful at working with property owners or associations to get condos recertified. “This allows my client to market to a wider range of buyers while also benefiting other owners and ultimately having a positive impact on property values.”

Because FHA approval requires a significant amount of paperwork and red tape, many condo associations may simply choose not to apply. If you intend to use an FHA loan to purchase a condo, it’s a good idea to do your research and ensure that the property is FHA-approved before getting your heart set on a particular property. You can visit the HUD website to search for FHA-approved condos in your area, or talk to an FHA-approved lender who can provide an up-to-date list of approved condo projects and help walk you through the mortgage preapproval process.


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