FHA loans can be a good funding alternative for condos, but they have more constraints for condo buildings compared to other properties because of the chance of group ownership. The condominium complex or construction needs to be FHA-approved in order for a buyer to get FHA condo funding. While the old guidelines allowed for acceptance on individual components, or spot financing, current guidelines have eliminated that option. Each complex or construction must apply for approval and fulfill these conditions.
HOA Regulations
To get FHA acceptance, certain standards will need to be kept by the homeowner’s association. The homeowner’s association budget is needed to have reserves equal to 10 percent of their institution’s annual budget, based on New Neighborhoods. No more than 15% of owners in a condominium construction can be more than 30 days delinquent on association dues.
Insurance Prerequisites
A condominium complex must have adequate insurance on the property to be accepted for FHA financing. General liability insurance covering each the common elements have to be in place, as stated by the U.S. Department of Housing and Urban Development. If a complex has 20 or more components, a fidelity insurance bond is required to protect the homeowners from monetary loss due to fraudulent acts by the homeowner’s association.
Ownership and Use
Condos which fulfill FHA requirements must possess at least 50 percent of the units occupied by owners and not leased or owned by investors. In addition, FHA mandates that no single investor can own 10 percent or more of their condominium construction, based on RealtyTrac. Another FHA condo guideline is the condominium construction or development has to be mostly used as residential property. Moreover, no longer than 25% of the construction can be used for industrial activity, including restaurants and shops.
New Condominiums
In new construction condominium jobs, at least half of the components in the building has to be sold or have executed sales contracts and documentation a lender will fund the loan. With condominium conversions, all of remodeling of these units and common areas must be completely finished before loan approval can be obtained, as stated by the U.S. Department of Housing and Urban Development.
Miscellaneous Prerequisites
Beyond the actual unit and construction, FHA condo guidelines extend to geographical and environmental factors that could affect the property. Condominium buildings located within 3,000 feet of landfills and 2,000 feet of buildings which could be prone to fire hazards cannot be accepted for FHA financing, based on RealtyTrac. FHA guidelines don’t accept condos which are in close proximity to freeways, airports or railroads due to noise risks. Condominium projects located in designated flood zones or wetlands are also not qualified for FHA loans.