FHA approved condos — Complete 2025 guidelines and updates

FHA approved condos

FHA approved condominiums meet the mortgage insurance guidelines of the Federal Housing Administration and are eligible for FHA mortgage financing. They generally feature a high concentration of owner-occupied units, a strong condo association balance sheet, and are free of litigation.

FHA mortgage rates for condos

are an important part of today’s housing market — both for single-family homes and for condos.

For many US borrowers, FHA loans are the cheapest, most-accessible low-down payment home loan.

The FHA minimum credit score requirements are as low as 580 for a 96.5 percent loan, and 500 for a 90 percent loan.

In addition, FHA mortgage rates are typically about .25 percent lower than conventional (non-government) loans. However, their mortgage insurance requirement of 1.75 percent upfront and a monthly amount that varies according to your loan term pushes the actual cost higher.

When you compare FHA condo loans with other programs, include the mortgage insurance in your calculations.

How to get a condo “FHA approved”

In order to get a condo building “FHA-approved”, the FHA requires specific documentation which varies based on the condo building’s history.

Getting a condo “FHA-approved” can take as little as two weeks or more than three months.

Note that getting a condo FHA-approved is not the home buyer’s responsibility. Typically, the responsibility falls to the developer of the condo or an agent for the developer. For more established condo buildings, a condo association or management company submits the condo approval package.

Owner occupancy

FHA guidelines for condos specify that a certain percentage of the units be “owner occupied.” For that calculation, FHA considers vacation condos or units occupied by family members as owner-occupied. In fact, a condo is owner-occupied unless it is:

• Occupied by a tenant
• Vacant and listed “for rent”
• Vacant and listed “for sale”
• In escrow to a buyer who does not plan to live in the unit or use it as a second home.

Requirements for proposed condo buildings which are not yet built

Condos which are not yet built or developed must provide more documentation to the FHA than established projects. This is because the building has no history. Developers may begin the FHA condo approval process when they plan their construction.

To get an unfinished condo building FHA-approved, the developer must submit:

1. An application for environment review, using HUD Form 92250
2. A document describing the type of condominium structure, number of proposed units, and common facilities
3. A location map
4. A preliminary site plan
5. An Equal Opportunity Employment certificate, using HUD Form 92010
6. An Affirmative Fair Housing Marketing Plan
7. A letter from the state Historic Preservation Office stating that the project is “acceptable”

The FHA may request additional supporting documentation. That may include condominium legal filings, a proposed operating budget for the building, including reserves, and a proposed management plan.

Builders may have to certify that they constructed condo units in accordance with local building codes. They may also have to provide an architect’s certification of the construction of the building.

Lastly, condo developers should be prepared to provide the FHA with a survey showing the exact location of all on-site improvements plus existing utility easements; and, a one-year warranty against faulty materials or workmanship.

Requirements for buildings existing less than one year

For buildings under construction, and buildings which have been completed for less than one year, the approval process is easier.

A key point with newly-built condos or condos under construction is that without at least a 10-year warranty, FHA only allows 90 percent loans, and buyers must put at least 10 percent down.

Here’s what the FHA requires to approve a “new” condo building or a building under construction:

1. A document describing the type of condominium structure, number of proposed units, and common facilities
2. A location map
3. A recorded project plat, map, and/or air lot survey which identifies condo units
4. The developer’s plan and schedule for development
5. Condominium legal documents
6. A proposed condominium association budget
7. A management agreement or proposed management plan
8. A current financial statement of the condominium project, including reserves
9. Minutes from the last two condo association meetings, if they exist

In addition, the FHA may request appraisals of individual units, certifications from inspectors, and a construction warranty.

Requirements for existing buildings for which the developer has not turned over control to the condo association

There are different requirements when condo projects older than one year still have unsold units. These also apply if the developer has not turned over control of the development to the condo association. Here they are:

1. A document describing the project
2. A location map
3. A recorded project plat, map, and/or air lot survey which identifies condo units
4. Condominium legal documents
5. A condominium association budget
6. A management agreement
7. A current financial statement of the condominium project, including reserves
8. Minutes from the last two condo association meetings, if they exist
9. Evidence of completion of the project, usually an occupancy authorization

If the developer plans additional construction or expansion to the condo building, it must submit all of the documents in the section above.

Requirements for existing buildings with an active condo association

For condo buildings in which all common elements have been completed for at least one year, and for which a homeowners association is active and in control of the building, the steps to be an FHA-approved condo building are simpler. Here are those requirements:

1. A document describing the project
2. A recorded project plat, map, and/or air lot survey which identifies condo units
3. Condominium legal documents
4. The project’s annual budget, including income and expenses and sufficient reserves to meet current costs
5. A report from the management company
6. Minutes from the last two condo association meetings
7. Certification from the association that the building meets 50 percent owner-occupancy requirements

Note that the FHA will not approve a condo building which has construction defects or a deficient operating budget. In addition, “substantial disputes” or dissatisfaction among unit owners regarding the operation, maintenance, or management of the project can derail approval.

The FHA rarely approves buildings with outstanding lawsuits.

Requirements for condo buildings already approved by the Department of Veterans Affairs

Condo buildings already approved by the Department of Veterans Affairs for buyers using get fast-tracked through the FHA condo approval process.

To approve an existing VA-approved condo, the FHA requires:

1. The VA project approval letter (VA Letter 26-619), plus a brief description of the project
2. Condominium legal documents
3. Certification from the association that the building meets 51 percent owner-occupancy requirements

Pre-sale buildings must show a recorded plat, the proposed operating budget of the condo association, the developer’s plan and schedule for development, and an Affirmative Fair Housing Marketing Plan if the projects include five or more units.

Existing condo buildings must submit the condo association’s current financing statement and operating budget. They must also supply the minutes from the last two meetings.

FHA backs loans of up to 96.5 percent for buildings with at least a 10-year warranty. For all others, FHA loan-to-value limit is 90 percent.

Requirements for condo buildings already approved by Fannie Mae

Condo buildings with Fannie Mae approval can get fast-tracked through the FHA condo approval process, too.

FHA requires this information before approving an existing Fannie Mae-approved condo development:

1. Application for Project Acceptance — Fannie Mae Form 1026
2. Conditional Project Acceptance, if required — Fannie Mae Form 1027
3. Final Project Acceptance — Fannie Mae Form 1028

Again, buildings with at least a 10-year warranty can be financed with just 3.5 percent down. For others, FHA loan-to-value limit is 90 percent.

FHA approved condos: Rules and requirements

FHA condominium guidelines are often stringent. It’s more difficult to get approved for a on a condo than for a single-family home.

Condos are more difficult to approve than detached homes because they are riskier for the FHA to insure. If one condo unit in a building goes to foreclosure, for instance, the value of all units in that building can potentially decline.

As home values fall, the cost to insure against loss climbs, which weakens the FHA’s business.

So FHA imposes stricter guidelines, making sure that the condo development and / or association is financially healthy before approving a project.

FHA pre-sale requirements for new construction condos

The FHA requires that the builder sell at least 70 percent of the units in a new-construction project before it will back mortgages there.

In order to prove that a unit is “sold”, the FHA requires executed sales agreements and evidence of mortgage approval (if applicable). Buyers don’t always have access to this documentation.

In that case, the FHA will accept letters from lenders stating that the project meets the pre-sale requirements.

Note that the pre-sale requirement applies to existing condo buildings where the developer is still marketing the building’s units.

Owner-occupancy requirements for FHA-approved condos

The “Housing Opportunity Through Modernization Act of 2016,” created some temporary changes to FHA condo guidelines, making then easier to finance. HUD extended these temporary measures in 2017 until it is able to create additional guidance.

The maximum allowable percentage of rental / investment condo units rose from 50 percent to 65 percent. This makes a huge difference in many areas, especially resort towns with lots of holiday rentals.

To take advantage of the new guideline, the community must comply with all other FHA condo requirements and meet these additional criteria:

• The project has replacement reserves of at least 20 percent of the budget,
• No more than 10 percent of the units are in arrears (more than 60 days past due)
• The condo has three years of acceptable financial documents
• The project must be at least 12 months old

Note that lenders may issue mortgage approvals to FHA borrowers prior to a condo building meeting its owner-occupied requirement. However, the loan can’t actually close until the project meets that requirement.

FHA approved condo requirements for rental conversions

In general, rental conversions to condominiums are ineligible for FHA financing.

The exception to get the building FHA-approved is to meet the following three requirements:

1. The conversion to condos must have occurred more than 12 months ago
2. The borrower must have been a tenant in the building seeking FHA condo approval
3. A bona fide tenants organization which represents the majority of the building’s households must sponsor the conversion

Rental conversions must meet all other requirements for FHA-approved condos, too.

Construction completion requirements for FHA-approved condos

The builder must complete the entire condominium project before the FHA will back mortgages on its units. This is because owners of a condominium own their individual unit, as well as an interest in the “common elements” of a building which may include lobbies, garages, hallways, and storage spaces.

Sometimes, though, developers build condo projects in phases. In that case,the FHA requires:

1. A formal development plan from the building which includes the total number of units and all planned facilities for the community
2. Evidence that each phase meets both pre-sale and owner-occupancy requirements
3. A reasonable expectation that the developer will finish construction as planned.

If common areas are incomplete at closing, the builder must escrow 150 percent of their expected construction costs. The builder must also pay its proportional share of the cost of common areas for unsold units.

What are today’s mortgage rates?

Buying an FHA-approved condo requires home buyers to meet additional loan standards not required for purchasing a detached, single-family home. Qualified condo buildings, however, get access to the same great FHA mortgage rates as with all FHA-insured loans.

Get today’s live mortgage rates now.