What Is an FHA-approved Condominium?

When buying a home or condo, traditional bank lending requires 20% of the purchase price to be paid upfront. For many prospective buyers, making a 20% down payment is simply not possible. These prospective home buyers would thus be locked out of the housing market based on their inability to provide a 20% down payment, despite the ability to afford the monthly repayments. For prospective buyers finding themselves in this position, the Federal Housing Administration (“FHA”) provides a solution: home loans requiring as little as 3.5% down.

When buying a house, an FHA-eligible borrower can get FHA financing so long as the property conforms to certain requirements, such as price. However, unlike homes, condos must be FHA-approved via a certification for eligible buyers to finance their purchase via FHA loans. This certification restriction can significantly restrict the pool of potential buyers given that condos are often a vehicle for first-time homebuyers to enter the market.

Requirements for an FHA-Approved Condo

To be an FHA-approved condo, the following requirements must be met for certification:

  1. The property must be completed – selling “off the plan” does not qualify as an FHA-approved condo
  2. A maximum of 50% of units can be rentals or investor-owned
  3. The property must be insured with at least 10% of the HOA budget in a cash reserve
  4. A maximum of 35% of the property can be commercial use

If a condo meets all of the above requirements, the association or owner(s) can apply for FHA certification. If approved, the condo must be recertified every 3 years. In a recent change to the FHA certification rules, individual condo units can now be FHA-certified rather than the entire building. Thus, for condo associations that do not wish for the entire building to be eligible for FHA loans, individual units can now apply for certification.

The approval process is dependent upon the building and association. While the above-referenced requirements are necessary, the FHA will investigate other matters in relation to the association and building prior to determining certification. Some of these factors include recent or pending litigation, special assessments, governing documents, and building quality.

Contact the Law Offices of Richard Palumbo Today to Discuss Your Options

Whether you’re seeking an advisor to evaluate the merits of seeking FHA certification, have questions relating to FHA certification, or have decided to pursue FHA certification, the lawyers at the Law Offices of Richard Palumbo offer more than 100 years of combined legal experience to provide you with the most expertly tailored legal advice in Rhode Island. Having successfully represented condo associations, developers, and investors in condo-related legal matters, our attorneys are able to see the big picture and ensure that all aspects of FHA certification are analyzed in light of your specific circumstances. If you are interested in learning more about FHA-approved condos and the process or have specific requests, please contact our office to set up a consultation or complete the contact form.