FHA Approved Condos & Ownership Requirements

FHA-approved condos meet Federal Housing Administration standards for structure, location and association. Key requirements include being completed for over a year and limiting individual ownership to 10% of the total units.

By David C. Mully

Contribution by 1 expert

Updated: December 21, 2024

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The Federal Housing Administration (FHA) condominium loan program allows condo buyers to use FHA loans as an alternative to conventional mortgages and refinances. But not every condominium qualifies for an FHA loan. If you're planning to use an FHA loan to buy a condominium unit, learn which condos qualify in your area before you start home shopping.

You can search for FHA-approved condominiums using the FHA's condominiums search tool. If a condominium you want is not on the list, it is still possible for the property to gain FHA approval and become eligible. The approval process takes 30 to 60 days.

What is an FHA-Approved Condo?

Not every condominium is FHA approved. A condo's structure, location and association must meet FHA requirements to gain approval. Existing FHA-approved condominiums must renew their certification every two years.

FHA-compliant condominium associations must follow FHA rules. For example, FHA condominiums cannot have a high percentage of renters. The condominium building or development must be mostly used as residential real estate, and the condo must be a certain distance from known hazards.

If the condominium is not FHA approved, the condo association may be willing to go through the FHA-approval process. Gaining FHA approval would benefit condo owners by opening up the pool of potential buyers to a wider market. It would also give owners who want to refinance another loan option.

Some condo associations might refuse to apply for FHA approval because they don't find it a priority or want to avoid the costs associated with the approval process. Condo associations have to pay a fee to apply for FHA approval.

FHA Condo Ownership Requirements

To be eligible for FHA condo certification, condominiums must be legally structured as actual condominiums and not as co-ops. The property must consist of two or more units.

Complete with Owners

The condo must be completed for more than one year. If it is a new construction project, half of the units must be sold to permanent owner-occupants.

Concentration of Ownership

The FHA limits individual ownership to 10 percent of the total units in the complex. Investors are not allowed buy units beyond the 10 percent. There are exceptions for condos with a small number of units. The FHA will not certify the condominium project if ownership is concentrated. This rule protects owner-occupants from their development becoming a rental complex.

FHA Condo Insurance Requirements

The project must have sufficient insurance coverage for hazards and routine liabilities. Depending on the condo's setting, the FHA may require the homeowners association (HOA) to buy additional insurance.

Basic Liability Insurance

FHA-compliant HOAs must buy hazard and liability insurance for certain areas of condominium projects. HOA insurance usually covers common areas and exterior elements, such as roofs of condo units. Homeowners need their own insurance coverage for the interior of the condo unit.

Extra Hazard Insurance

The condominium must have flood insurance if the property is located in a special flood hazard area. An increasing number of homeowners are forced to pay for flood insurance these days as a result of recent map changes by the Federal Emergency Management Agency (FEMA).

FHA Condo HOA Requirements

The FHA requires FHA condominium HOAs to follow rigid guidelines designed to protect the civil rights and pocketbooks of buyers. Most FHA HOA rules focus on the financial viability of the HOA.

No Illegal Discrimination

HOA bylaws and covenants may not violate the Fair Housing Act. Violations mostly come in the form of some type of discrimination. The condominium association is at risk of violating federal law if it discriminates against people in protected classes, such as people above a certain age or racial minorities.

Low Delinquency Rate & High Reserves

No more than 15 percent of HOA dues can be delinquent, and the HOA must have reserves. In addition to evaluating the borrower's financial background, the lender also looks at the financial condition of the HOA. If the HOA is not secure, it could cause a lender to back off. A lender might hesitate to lend in a condominium where the HOA doesn't seem financially sound. This is a factor when selling a condo as well, as a prospective buyer's lender may not find the HOA suitable.

Pending Litigation & Special Assessments

The FHA sees special assessments and pending litigation as red flags. Any special assessments must be addressed with a signed and dated explanation from the HOA, management company, builder, or developer. The same is true with litigation, which requires the HOA's attorney to provide a signed and dated explanation of the pending litigation. (This rule does not apply to foreclosures.) It is still possible to gain FHA condo approval with pending litigation, but the chances are reduced.

FHA Condo Building Requirements

FHA-approved condominiums must limit the amount of space devoted to commercial enterprise. Also, the condo development must be safe from obvious hazards that might harm the property's value.

Limited Commercial Use

No more than 25 percent of a condominium project's total floor space may be used for commercial purposes. Any non-residential or commercial portions of the project must be of a compatible nature with residential use.

No Nearby Hazards

FHA takes into consideration geographical and environmental factors beyond the unit and building. Hazards that could affect approval include some landfills, fire hazards, and proximity to roadways and other obvious hazards.

This summary is not an exhaustive list, and is meant to give you an idea of the basic requirements for FHA condominium approval. Find FHA-approved condos in your area on the FHA's Condominiums search tool.

Condo Association Dues

Lenders include your monthly condo association dues when calculating the escrow amount that is added to your monthly loan payment. The HOA fees may have a big impact on how much you can afford. Before you get pre-qualified by a lender, research what the average cost of condo association dues are in your area of interest. It's also a good idea to research your property taxes.

A few hundred dollars per month could greatly affect how much you qualify for. Ask the lender what the FHA mortgage insurance premium monthly cost might be on your loan amount and factor this in as well. Check your payment using our mortgage calculator.

FHA Condominium Questions & Answers

Eric Lowery

President

Eric Lowery is president of Insight Loans. An expert on the mortgage process, he offers the following insights on FHA condominium loans.

Ask the experts:

Are there any special restrictions when an FHA borrower wants to refi an FHA condo loan?

President

Most people would refi to a conventional loan to eliminate the mortgage insurance. Conventional mortgages do not have an association-approval list like the FHA does. But they require a condo questionnaire to be completed by the association, and it must meet all of the requirements, or the association will not be eligible for conventional financing.

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*This interview has been edited for clarity and length.

About David C. Mully

David C. Mully has 26 years of experience in the mortgage industry. He is a former loan officer and writes for newspapers, websites and social media blogs.