FHA loans are a popular choice for many home buyers because of their low down payments and flexible credit score requirements. If you’re looking to buy a condo, you may be wondering whether you can get an FHA loan to finance it.
The short answer is yes. You can search for FHA-approved condos that are already approved for these loans, or you can request FHA approval for the individual condo unit that you want to purchase.
Let’s take a closer look at how the process of buying an FHA-approved condo works.
Key Takeaways:
- Some condos are already approved for FHA loans. You can find them using a database.
- It’s possible for a condo to become FHA-approved, even if it’s not already on the FHA’s list.
- There are some potential drawbacks to financing a condo with an FHA loan, including the need to pay a mortgage insurance premium (MIP).
Can You Buy A Condo With An FHA Loan?
It used to be that buyers first had to find a condo building or development already approved by the FHA for this type of mortgage. Today, however, it’s possible to buy an individual condo with an FHA loan.
In 2019, the FHA announced a rule allowing an individual unit to become eligible for an FHA loan even if the entire condo project isn’t FHA-approved. The FHA said the change was intended to increase homeownership by making FHA loans more accessible to condo owners.
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How To Find An FHA-Approved Condo
The simplest way to find FHA-approved condos is to use the condo search tool from the U.S. Department of Housing and Urban Development (HUD).
The tool lets you search by:
- State
- City
- Zip code
- County
- Condo building name
Once you enter your search criteria in the FHA condo lookup tool, you’ll see which communities are approved, expired, rejected or withdrawn.
You can also ask your real estate agent for a list of FHA-approved condos in the neighborhoods where you’re searching. And if you’re already working with an FHA lender, they may have a list of approved condo communities in your area.
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How To Get FHA Approval For A Condo
If the condo you want to buy isn’t on the approved list for FHA loans already, don’t give up. You may be able to get FHA approval for the condo community you’re looking to buy in or the individual unit you’re trying to purchase.
FHA-Approved Single Unit Condo
If the building where you want to buy a condo isn’t FHA-approved, you can still request approval for a specific unit. Your lender will then work with the complex’s management company or homeowners association to file paperwork with the FHA.
For a single condo to gain FHA approval, certain conditions must be met:
- The condo must be in a development with at least five condo units.
- The unit must be ready for occupancy.
- The condo unit can’t be a manufactured home.
In addition, for a condo community with 10 or more total units, no more than 10% of individual condos can have an FHA loan. For condo communities with fewer than 10 total units, a maximum of two units can have an FHA loan.
FHA-Approved Condo Community
If you’re trying to buy a condo that is not yet FHA-approved, the condo association can apply for the entire development to get FHA approval. To do this, the association must complete the HUD Review and Approval Process (HRAP) or Direct Endorsement Lender Review and Approval Process (DELRAP).
To qualify for FHA financing, condo developments must meet these requirements:
- The condo development must be completed and ready for occupancy.
- The condo community must have had a stable income stream over the past two years, and the homeowners association must keep at least 10% of its budget in reserve.
- Most FHA-approved condo projects must have at least 50% owner-occupied units, though some projects may qualify with as little as 35% owner occupancy if they meet additional requirements. If renters occupy more than 50% of units, the project may not qualify for FHA financing.
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FHA Condo: Approval Requirements For Buyers
If you’re interested in buying a condo with an FHA loan, your credit score, down payment and debt-to-income ratio (DTI) will all play a role in whether you’re able to secure the funding to move forward.
- Credit score: You’ll need a good credit score to qualify. To make a down payment of 3.5% of your condo’s purchase price, FHA mandates you’ll need a credit score of at least 580. Otherwise, you’ll need a minimum credit score of 500 for a 10% down payment. Note that lenders may set their own required higher scores, so be sure to do your research..
- DTI: Your DTI measures how much of your gross monthly income goes toward debt payments. For an FHA loan, lenders typically want your monthly debts to equal no more than 43% of your gross monthly income. It’s possible in some cases, however, to have a higher DTI and still qualify for an FHA loan.
- Proof of employment: You generally need proof of stable employment and income to qualify for a mortgage, and that rule extends to FHA loans too.
- Residence: The condo you’re financing with an FHA loan must be your primary residence.
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The Pros And Cons Of FHA Loans For Condos
Buying a condo with an FHA loan has both benefits and drawbacks. It’s important to weigh these pros and cons to see if an FHA loan is right for you.
Pros Of FHA Loans For Condos
- A low down payment: FHA loans let you buy a home with as little as 3.5% down. If you can afford monthly mortgage payments but don’t have a lot of money saved for a down payment, an FHA loan could be your ticket to homeownership.
- The potential to qualify with a lower credit score: The minimum credit score the FHA requires is 500, and you can qualify for a 3.5% down payment with a credit score of 580. However, while conventional mortgages once had a strict 620 minimum credit score requirement, that guidance has been updated. Now, lenders can rely on a broader risk assessment rather than impose a strict credit score cutoff for conventional loans.
- Higher seller contributions: Sellers can pay up to 6% of the sale price – also known as a seller concession – with an FHA loan.
Cons Of FHA Loans For Condos
- An upfront mortgage insurance premium (MIP): One of the biggest drawbacks of an FHA loan is that you’ll be charged an upfront mortgage insurance premium (MIP). All FHA borrowers must pay an upfront MIP equal to 1.75% of the amount they’re borrowing.
- An annual mortgage insurance premium (MIP): FHA borrowers are also responsible for an annual MIP, which is generally split into monthly installments and added to each month’s mortgage payment. Most borrowers pay 0.55% of the loan’s balance in annual MIP costs.
- A more challenging process: In some markets, it can be difficult to find condos eligible for an FHA loan. If your chosen unit isn’t in an FHA-approved condo building, you can try to get it approved, but you may be denied.
FAQs: FHA-Approved Condos
Let’s take a look at some frequently asked questions about FHA-approved condos.
If the building is still under construction or more than 50% of the units are occupied by renters, that could make a condo ineligible for an FHA loan.
The Bottom Line On FHA-Approved Condos
It’s possible to finance a condo with an FHA loan, but you’ll need to find an FHA-approved unit or have the condo approved for FHA financing. That process can take time and isn’t guaranteed to succeed. It may still be worth pursuing if you want a mortgage with a low down payment.
You can also research other mortgage types and compare lenders, ensuring you understand all your loan choices.
Maurie Backman
Maurie Backman has more than a decade of experience covering personal finance topics that include mortgages, loans, retirement, Social Security, and investing. Prior to becoming a full-time writer, she worked in the financial industry as well as in product design and marketing. Maurie holds a bachelor's degree from Binghamton University, where she studied creative writing and finance. She was happy to combine her two areas of study into a career that allows her to educate consumers on a host of financial topics.
