July 20, 2011
There are many differences between the different types of FHA loans available; there are new purchase loans, FHA construction loans, home equity conversion mortgages, and many other types.
Just as there are different types of loans, there are also many different kinds of property you can buy with an FHA-insured mortgage. Mobile homes, mixed-use property, multi-family units, and condos can all be purchased with an FHA loan if the properties meet FHA requirements.
When it comes to buying a condo, the loan approval process is more unique than for other types of properties. Condos, unlike a traditional suburban home, must be approved by the FHA and included on the list of FHA-approved process. A typical suburban home would require an FHA appraisal, but a condo must be on the FHA’s list AND get an appraisal.
One of the reasons for the tighter controls on condo projects is the nature of the property. Because most condos are not being sold as an entire property, but rather as individual units within a larger building, ownership issues are more important. When you buy a house, the property is yours to dispose of however you see fit.
But a condo can’t simply be bought and sold in some cases–some projects include deed restrictions that govern what may be done with the unit after it has been purchased.
For example, a deed restriction may require the owner of an individual condo unit to seek approval of a third party before selling or transferring ownership to someone else. Some deed restrictions state that if certain conditions are not met by the owner, there are legal grounds to terminate ownership, increase or accelerate the mortgage, raise interest rates or other actions.
These restrictions may be permitted under the law, but they render a property ineligible for FHA mortgages. The FHA does not allow loans on properties where the buyer cannot sell or transfer ownership of the property at any time. According to the FHA official site, “properties with FHA-insured mortgages shall be free of restrictions that prevent the borrower from freely transferring the property…” and use the technical term “legal restrictions on conveyance”.
The FHA adds, “this term is broadly defined to include provisions in any kind of legal instrument that would cause a conveyance (including a lease) by the borrower to be void, or voidable by a third party, (or) be the basis of contractual liability of the borrower.”
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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