FHA Condo Guidelines And Mortgage Approval Process

FHA condo guidelines have changed to benefit condominium homebuyers with an FHA loan. Condominium buyers who wanted to use an FHA loan had a hard time until recently due to the fact that HUD only allowed condos in a HUD-approved condo complex. More and more condo complexes are not renewing their annual Condo HUD certifications.

For a condo complex to be HUD-approved per FHA condo guidelines, the condo homeowners association needs to renew its certification every year. However, most warrantable condo complexes decide not to renew their annual condominium complex HUD certification because it take time and a lot of money. HUD recently updated the FHA Condo Guidelines where FHA spot loans are now allowed.

What Is An FHA Spot Loan?

FHA condo guidelines has reintroduced FHA spot loans. FHA spot loans are when a condominium homebuyer gets an exemption to purchase a condo with an FHA loan in a warrantable condominium complex that is not HUD-approved. A warrantable condominium is where the condo complex consists of 51% or more owner-occupant owners where the unit is their primary residence. Condominium homebuyers can now request an FHA spot loan on a warrantable condo where the condo complex is not HUD-approved.

Buying A Condominium With An FHA Spot Loan During The Coronavirus Pandemic

The coronavirus outbreak hit the United States in February 2022. The condominium market has been quite a year for the mortgage market up to this point. We are currently seeing turmoil in the industry due to the coronavirus. We all hope this global problem goes away as quickly as possible. FHA condo guidelines have since gotten more lenient. The new updated FHA condo guidelines now allow for FHA spot loans.

In this blog, we will update our readers on how to utilize a mortgage backed by the U.S. Department of Housing and Urban Development to purchase a condo. These guidelines are constantly changing and last year we saw some major improvements on the FHA side. This blog will educate our readers on HUD-backed mortgages and condominium guidelines.

The Newly UPDATED 2022 FHA Condo Guidelines For Condo Homebuyers

First, we must understand what a condominium means. A condominium or condo is defined as a living space similar to an apartment but is sellable as individual units, qualifying them as real estate. A condominium building is divided into several units that are individually owned. More often than not, the complex itself will have common areas that are jointly owned such as a dog park or parks for kids. Condominiums are becoming more popular across major cities.

As we see millennials and generation Z enter the mortgage market, a condo is a great property for this demographic. Many retired couples and individuals love condos as well. There is no outside maintenance required by the tenants. You are only required to insure the walls are in. Let’s go over some more pros and cons of condominiums.

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Benefits Of Owning A Condominium Versus Single-Family Homes

Advantages of buying a condo:

Usually more affordable compared to single-family dwellings
Many times cheaper than renting!
The majority of the maintenance is completed by the homeowner’s association
Outdoor landscaping and snow removal are not your responsibility
Lower insurance costs due to your policy only covering the “walls in” policy
Usually, lower cost than a single-family home depending on the homeowners association fees
Usually the property taxes in a single family home due to not owning land
Condo buyers need to pay attention to how much the condo homeowners association is

Many condominium complexes have on-site security making them a safe living option.

Disadvantages Of Condo Ownership

Disadvantages of buying a condo:

Loan level pricing adjustment – Usually there is a slightly higher interest rate when purchasing a condo compared to a single-family dwelling
Homeowners association dues
Not every homeowner’s association is doing business correctly
We have heard horror stories of members of the condo homeowners association mismanaging funds
Make sure you do your research on the association and management company.
Added loan fees such as condo questionnaire
Close living quarters
A lack of privacy and limited parking can be a problem in some complexes
Pets – depending on the complex, your loved ones may not be allowed
Important to check on the rules regarding pets before you purchase a condo
Lack of storage space, just like an apartment many condos do not have room to store all of your belongings

You may need to have a monthly living cost of a storage unit if you’re purchasing a condo.

Meeting FHA Condo Guidelines To Purchase A Condominium With An FHA Loan

A condo is an amazing property especially if built correctly. FHA condo guidelines have gotten much more lenient than in the past. Condos are growing in many areas and provide lower-cost housing to thousands of Americans. Buying a condo with an FHA loan needs to go down one of two routes. The path of least resistance is when the complex is already approved through the FHA. There is a database of approved condo complexes across the nation. Please see this link to search properties in your area.

HUD Approved FHA Condo List

If you see your complex on THIS LIST, it means they have previously passed the FHA requirements. If you do not see the condo complex on your list, it is still possible to use an FHA loan to buy this property. You must complete a SINGLE UNIT APPROVAL (sometimes called spot approval). The FHA condo guidelines process can be quite tedious and will cost you a little bit of money. There are certain requirements that must be met. Very important to understand that manual underwriting of a single approved condo requires a 10% down payment or greater. This is an FHA requirement that we do not see it changing anytime in the future.

2022 FHA Condo Guidelines And Eligibility Requirements On FHA Loans

FHA Condo Basics:

580 scores and above require a 3.5% down payment
Scores 500 – 579 require a 10% down payment
Condo must pass FHA requirements

Buying a condo with a VA mortgage. This process is very similar to the FHA process if the property is already approved through the VA. If the condominium complex is not approved through the VA, there is not a single unit approval available at this time. In order to purchase a condo with a VA loan, the complex must be approved on THIS LIST.

Qualifying For An FHA Loan On A Condominium

If you were in the market to buy a condo, please do not let this blog scare you. We are experts in mortgage financing surrounding condominiums. For more information, please call Mike Gracz at (800) 900-8569 or shoot an email to gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, on evenings, weekends, and holidays to answer your mortgage questions. Please check out our reviews and a YouTube CHANNEL to stay up to date with our mortgage team. Gustan Cho Associates has a national reputation of being able to do mortgages other lenders cannot do. We are mortgage bankers, correspondent lenders, and mortgage brokers.

Mortgage Lender With No Overlays On Government And Conventional Loans

Gustan Cho Associates has no lender overlays on government and conventional loans. Gustan Cho Associates has the ability to broker non-QM and alternative special mortgage loan programs. Gustan Cho Associates has a national reputation for its no-lender overlays business model on FHA, VA, USDA, and conventional loans.

Some of our popular non-QM and alternative mortgage loan programs are no-doc home loans, bank statement loans, asset-depletion mortgages, non-QM one day out of bankruptcy and foreclosure, non-QM jumbo mortgages with credit scores down to 500 FICO, and dozens of other specialties non-QM mortgage loan programs.

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