Why are most condos not approved for FHA or VA loans?
Many different types of FHA loans are available for borrowers who want more options than a typical suburban home. Many properties may be purchased with an FHA-insured mortgage, including manufactured homes, multi-family units and condominiums.
FHA Condo Loans Feature Unique Requirements
FHA condominium loans can be more complicated than other types of new purchase real estate loans because the FHA has requirements for liquidity, ease of sale etc. However, these factors shouldn’t discourage a borrower from exploring their low down payment condo loan options. Still, it’s essential to be aware of the rules to save time and to begin searching for a new home in the right place.
Condos have restrictive covenants, rules and other issues that the FHA usually rejects.
For a given condo to be approved for an FHA home loan, it must be on (or added to) the FHA’s list of approved condominium projects. In addition, FHA publishes a searchable list of approved condo projects on its website.
What criteria must a condominium project meet to be included on that approved condo project list? FHA guidelines state, “to be eligible for FHA mortgage insurance, the project must have been declared and exists in full compliance with applicable State law requirements of the jurisdiction in which the condominium project is located and with all other applicable laws and regulations.”
“FHA insures condominium single unit loans for up to 30-year terms to purchase or refinance a unit in an FHA-approved condominium project. The condominium project must be primarily residential, contain at least two dwelling units, and can be detached, semi-detached, a row house, a walk-up, mid-rise, high-rise, including those with or without an elevator, or manufactured housing.” That is a quote from the FHA/HUD official site.
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Some properties are not eligible due to the nature of the project. For example, “condo hotels” are not allowed on the FHA-approved condo project list. Also forbidden–timeshares, houseboat projects, or condos that feature more than one dwelling in a single condominium unit.
Fill out the online form to get a free list of FHA/VA and Low Down Payment Homes.
The good news is that many condo buyers can get a home loan with 5% down.
Condo projects may not be FHA approved if they contain restrictive requirements. For example, the “right of first refusal” clause in some condo owner association agreements can be problematic for FHA borrowers.
If you want an FHA condo loan, FHA encourages the use of the approved condo list as a way to start searching for a suitable building in your area. The HUD search tool lists approved condo projects by condo name, state, zip code, and other factors.
A condo project that is not currently on the approved list may be added with the help of your participating lender-speak to a loan officer about what may be required.
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Copyright © This free information provided courtesy L.A. Loft Blog with the information provided by Corey Chambers, Realty Source Inc, DRE 01889449; MPR Funding Inc NMLS 2000513. We are not associated with the seller, homeowner’s association, or developer. For more information, contact 213-880-9910 or visit LALoftBlog.com, Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Properties are subject to prior sale or rental. This is not a solicitation if the buyer or seller is already under contract with another broker.