FHA Condo Mortgage Guidelines

FHA Condo Mortgage Guidelines Versus Conventional Guidelines

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On FHA Condo Mortgage Guidelines Versus Conventional Guidelines Was UPDATED And PUBLISHED On July 28th, 2019

Homebuyers can purchase single-family homes, townhomes, multi-unit homes, and condos with FHA loans. However, FHA Condo Mortgage Guidelines require that condominium units that FHA borrowers finance, the condo complex needs to be HUD Approved

  • Homebuyers can purchase any single-family home, townhome, or multi-unit home they want in any area
  • As long as the property comps out via a residential home appraisal home buyers can purchase any property in the United States 
  • However, there are restrictions with condominium units per FHA Condo Mortgage Guidelines
  • A condo buyer can only purchase HUD-approved condos with an FHA loan
  • Besides borrowers being qualified for an FHA loan, the Condo project needs to be FHA approved
  • Just because it is on the FHA approved condos list does not mean that the condo complex is currently in active standings
  • If the condo a condo home buyer wants to purchase is not on the FHA approved condos list, the condo buyer needs to see if they can qualify for a conventional loan
  • This is because they will not qualify for an FHA loan if the condo is not an FHA approved condo

FHA Versus Conventional Loans For Condo Purchase

FHA loans are owner occupant residential mortgage loans which are backed the Federal Housing Administration. HUD, the United States Department of Housing and Urban Development, is the parent of the Federal Housing Administration (FHA).

  • The Federal Housing Administration is not a mortgage lender
  • FHA is government insurer who insures FHA approved mortgage lenders against default from the FHA loans they originate and fund to their borrowers in the event borrowers default
  • FHA approved lenders need to make sure that they follow FHA mortgage guidelines in order for the FHA loan to be insureable by the Federal Housing Administration
  • The Federal Housing Administration is the largest insurer of residential mortgage loans
  • FHA was created to make homeownership affordable to hard working Americans
  • FHA has much easier mortgage qualifying guidelines than conventional loan programs
  • A home buyer can qualify for a FHA loan with the following:
    • higher debt to income ratios
    • prior bad credit
    • prior bankruptcy
    • prior foreclosure
    • prior deed in lieu of foreclosure
    • prior short sale
    • outstanding collections and charged off accounts

HUD Condominium Mortgage Guidelines

To qualify for a 3.5% down payment FHA Home Loan, the borrower only needs a 580 credit score:

  • Unsatisfied collections and charged off accounts do not have to be paid
  • Multiple non-occupant co-borrowers are allowed with FHA loan programs
  • FHA allows up to a 6% sellers concession towards a buyer’s closing costs
  • Conventional loan programs only allow 3% sellers concessions towards a buyer’s closing costs on owner occupant homes and 2% for investment homes
  • FHA also offers manual underwrites
  • Manual underwrites are mortgage loan applicants who could not get an automated approval via Fannie Mae’s or Freddie Mac’s Automated Underwriting System

FHA Loans After Bankruptcy And Foreclosure

FHA has much generous waiting period requirements for those who had a prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale than conventional loan programs.

  • A home buyer with a prior bankruptcy can qualify for a FHA Loan after 2 years from the discharge date of Chapter 7 bankruptcy
  • There is a mandatory 4 year waiting period after Chapter 7 Bankruptcy discharged date to qualify for conventional loans
  • For foreclosures, deed in lieu of foreclosures, and short sales, the mandatory waiting period is three years in order to qualify for a 3.5% down payment home purchase FHA loan
  • Per FHA Condo Mortgage Guidelines, buyers who can only purchase FHA approved condos with FHA Loans
  • If the condominium complex is not FHA approved, then their only option is to purchase a home, townhome, or multi unit property or see if they qualify for a conventional loan
  • Again, conventional loan programs have much tougher mortgage lending guidelines

Converting Non-FHA Approved Condo To FHA Approved Condos

Converting Non FHA Approved Condo To FHA Approved Condos

Non FHA approved condos can become FHA approved condos. However, the condo complex needs to apply for HUD Certification and pay the necessary fees.

  • In general, most condominium complex projects will most likely qualify for FHA approved condos
  • Once the proper paperwork and fees are submitted to the U.S. Federal Housing Administration, it normally takes between 30 to 90 days to get a non-FHA approved condo to FHA approved condo status
  • It is not up to the condo buyer to get the condo complex FHA approved
  • This task needs to be initiated by the condominium developer and/or homeowners association committee members

FHA will not approve a condominium complex that has building violations or have defects.  FHA will want to see that the condominium complex is in sound financial standings and no pending major litigation.

Department Of Veteran Affairs Approved Condos Getting FHA Approved

VA approved condos that are not FHA approved can get FHA approved easier than a condominium complex that is not VA approved.

  • The condo complex needs to be 51% owner occupied
  • The condo homeowners association needs to provide the legal documents of the condominium association along with the financials
  • The condominium complex homeowners association needs to provide the VA Letter 26-619 VA approval letter along with the project details
  • New construction condominium complex projects need to provide the following:
    • plat survey
    • finalized condominium homeowners association operation budget
    • the condominium developer’s scope of work of the development of the condominium project
  • For existing condominium complex, the condominium homeowner’s association needs to provide the condominium association’s operating and financial statements

How Do Mortgage Lenders View Condominiums

Mortgage lenders view condos as riskier investments than single family homes. Lending standards are tougher.

  • For example, interest rates on condos are higher than single family homes
  • It is tougher to get an automated approval for a condo than a single family home for conventional loan programs
  • For example, here is a case study:
    • I had cases where a conventional mortgage loan applicant with a 620 credit score
    • got an approve eligible per DU FINDINGS
    • But got a REFER ELIGIBLE PER DU FINDINGS with a condominium
  • Foreclosures in a condo complex will affect the market prices of all of the units in the condo complex
  • If a condo complex only has 10 units and 2 out of the 10 units foreclose, than 20% of the condo complex has foreclosed and that will affect value of the 8 other units

New Construction FHA Condo Mortgage Guidelines

Per FHA Condo Mortgage Guidelines, in order for a new construction condominium complex to get FHA approved, 51% of all condominium units need to be sold prior for FHA considering the new construction condo complex as FHA approved.  51% of all condominium units needs to be owner occupant and that requirement can get raised to 70% upon FHA discretion. Condominiums are considered poor real estate investments in general. However, maintaining a condo is much easier than a single family home. It does come with a price tag. Condominium Homeowners Association dues can be very expensive. Average monthly condo HOA dues can be north of $300 per month which is equivalent to a $60,000 loan balance. Gustan Cho Associates has no mortgage overlays on government and conventional loans.

This BLOG On FHA Condo Mortgage Guidelines Was UPDATED On July 28th, 2019

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