For many homeowners, especially millennials saddled with student debt, FHA mortgage loans make the dream of owning a home more attainable. As more people are migrating into cities, condos are becoming as popular as suburban homes were a generation ago. Finding an FHA-approved condo is vital to getting into a home that’s affordable with a mortgage that’s federally backed.
Working with an experienced local agent can ensure that you make the right decision when in search of an FHA-approved condo but it’s important you know a thing or two as a buyer.
What Makes a Condo FHA-Approved?
When shopping for condos, only those that meet eligibility requirements set out by the U.S. Department of Housing and Urban Development can be bought with an FHA loan. To get on the approved list, they need to be in a specific complex or need to meet criteria set by the government.
There need to be two or more units in a housing project and no more than 25% of the area can be used for commercial or non-residential use. If one investor or entity owns more than 10% of the units, the condominium doesn’t meet the needs.
Homeowners association fees also need to be up to date. If there’s any litigation currently against the association, that could be a problem. If the association is in the midst of a suit with a bad builder or a contractor, things need to be settled before certification is given.
In order for the government to back them, the units need to be insured. Hazard, liability, or other applicable insurance outlined by state law needs to cover these units.
Up to 65% of the units can be up for rent, though ideally, the majority would be owner-occupied.
Why Buy an FHA-Approved Condo?
If you’re looking into buying a condo with an FHA-backed loan, you save a lot of stress of the buying process. There’s a lot of paperwork that can come with buying a condo but when you work with an FHA-approved condo, the government does some of the legwork on your behalf.
To maintain FHA approval, the condo association has to be recertified every two years. That means that the FHA is going to ask the association to run inspections and keep up to date on their paperwork. As a buyer, that allows you some peace of mind when it comes to worrying about whether or not there are any shady practices occurring at the complex.
You should always have an inspection done and leave your paperwork with an attorney before you purchase a condo, but you’re in good hands with an FHA-approved condo.
There Are Exceptions
While certification can lapse or expire, there are a few cases where no FHA certification is required to get an FHA loan. This exception is reserved for what is called “site condos” which meet certain criteria to allow them to still be covered by the FHA.
If the unit you’re looking at is a single-family unit detached from other units, it may be considered a site condo. Garages, archways, breezeways or any other attachment would mean that the building was not a site condo. In the absence of the above, the unit could be considered autonomous.
When the insurance and maintenance costs are on the shoulders of the sole unit holder, then it could be considered to be a site condo. Typically, these are all covered by the condominium association or the building owner.
Guidelines for FHA condominiums are being changed and approved all of the time. If you’re in doubt, you should ask an experienced local realtor for their advice.
Is an FHA Loan Better Than a Conventional Loan?
If you’re looking to buy a home but you have less-than-stellar credit or earn a steady, but low, salary, the FHA can help. This is especially good for first-time home buyers who don’t already have equity.
Down payments for conventional loans are standard at 20% of the price of the home. With an FHA loan, borrowers can put down as little as 3.5% to get approved for a loan if they have a credit score higher than 580. For credit scores between 500 and 580, a loan can be obtained for just 10% down.
While low credit will cause an increase in interest payments, these federally-backed loans make it easier for more people to access their first home and to start building wealth.
Finding an FHA-approved Condo and Navigating the Process
The search and application process is meant to be easier with the help of the FHA but it can still be daunting, especially for first-time buyers. With the help of an experienced local agent, it’s possible for low-income and early career professionals to start building equity. An experienced local agent will help you to find and purchase a condo with FHA financing.
Using one of our Clever Partner Agents gives you access to an experienced professional who can help you navigate the process and get into your dream condo.