So What is FHA Financing?
The FHA, or Federal Housing Authority, is a government entity that helps to ensure that the mortgage market is stable by setting standards for construction, underwriting and insuring loans. Obtaining FHA financing means that the loan is insured by this authority and essentially insured by the federal government. FHA loan products allow buyers to utilize a minimum down payment of 3.5 percent and often allow those with lesser credit scores to obtain loans they otherwise would have been unable to obtain.
So What Does the FHA Have to do with Condos?
In short, Condos do not automatically qualify for FHA loans, and many buyers can only be buyers because they qualify for these FHA loans. This means that the pool of potential buyers increases if FHA loans are an option for buyers. Being limited to only accept conventional loans can severely decrease the number of possible buyers, or it can close off many housing options if you are looking to buy.
How do I know if the Condo is Qualified?
Since condo ownership differs from the standard fee simple ownership that would typically be found with single family homes or townhomes, there are different sets of criteria for the condominium unit to qualify for FHA financing. Here is a list of approved condominium projects that can provide you an answer quickly.
Why Makes a Condo Qualify?
First, it is not the individual unit itself that needs to be approved but the entire condominium project. Many times, the project is not approved because the process is so daunting. The full list of requirements can be found here, but we will go through some of the major requirements below.
What Does It Take to be Qualified?
For starters, the condo project must be compliant with local laws as well as the FHA requirements. It must be primarily residential with a maximum of 25 percent being used for commercial purposes. There cannot be an investor that owns more than 10 percent of the units. 35 percent of units must be owner occupied as opposed to being rented. It is also important to note that if 50 percent of units within the condominium are already being financed through FHA loans then no additional FHA loans can be taken out on any of the other units.
How to Get Qualified if the Condo is not Already
To get qualified, as mentioned above, the entire condominium project must be approved so you must have others on board to get approval. Going through the approval process can take some time so it is important to weigh the benefits of seeking approval and whether or not the time it takes to get approved will be advantageous to your sale.
When considering either buying or selling a Condo, some research into how FHA loans work is time well spent.
