October 20, 2014
If you’ve never considered owning or purchasing a condo unit before, you might be surprised to learn that the FHA single-family loan program does permit the purchase of approved condo units with an FHA loan.
The rules for condo loans are different than for traditional single family houses because of the shared nature of the property, so borrowers should become familiar with the FHA requirements for condo loans. To begin with, what does the FHA classify as a condo?
Take a look at the image above–could these houses be classified as condos? It depends partially on the nature of the housing market. In Chicago, for example, a house split into more than one dwelling could classify as a condo project if it meets certain FHA parameters–and in Chicago, such modifications are common.
According to HUD 4155.1, Chapter Four Section B, a condo defined as follows:
• has individually-owned units, which may be either
− attached in one or more structures, or
− detached from each other, and
• is essentially residential in use (for FHA purposes).”
But FHA condo rules aren’t the only things at work when it comes to the definition of a condo project or condo units. FHA loan rules in Chapter Four add, “A condominium regime is created by state or local law and is characterized by fee simple ownership of a unit which is defined in the condominium
documents, together with common areas.”
“The property interest in these areas is both common and undivided on the part of all unit owners, each of whom belongs to the Homeowners’ Association (HOA) that typically maintains the property and collects assessments or dues from each unit owner.”
And that’s where FHA loan rules come into play. Chapter Four: “FHA must approve condominium projects before a mortgage on an individual condominium unit can be insured.”
FHA loan rules say a condo project cannot restrict the borrower from selling the unit in any way once it has been purchased. The condo owner’s association or homeowner’s association bylaws cannot force the borrower to have the sale “approved” by the HOA or condo project board. There are other concerns, but that is a common stumbling block to FHA loan approval for some condo projects.
Overall, FHA loans are definitely possible for condos–work with your loan officer to determine if the condo project you want is already on the FHA approved list or needs to be approved before the loan can proceed.
We’ll review FHA condo loan rules in further detail in future blog posts.
Do you have questions about FHA home loans? Ask us in the comments section.
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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