Whether you have already made up your mind regarding the FHA condo or are still trying to figure out what it is, we have got you covered. You don' t need to open multiple tabs on your screen, as we will answer all of your FHA approved condo questions right here.
In this FHA guide, we will see what an FHA loan is, What are FHA-approved condos and, how you can find them, how to apply for FHA approved condo, and its main advantages. So, let's first start with an FHA loan.
What is an FHA Loan?
An FHA is a mortgage loan insured by the Federal Housing Administration. It is popular among first-time homebuyers who have little savings or face credit challenges. In fact, according to FHA' s 2020 Annual Report, 83 percent of all FHA loan originations were for the borrowers purchasing their first homes.
In simple words, an FHA loan helps borrowers purchase a home with lower credit scores and down payments than conventional guidelines allow. It is issued by lenders such as banks, nonbanks, and credit unions. FHA lenders offer favorable terms to borrowers who might not otherwise qualify for a home loan with insurance protection.
It is worth mentioning that FHA home loans can be used to purchase or refinance single-family houses, two-to four-unit multifamily dwellings, and certain manufactured places. Some specific types of FHA can also be used for new construction or renovation of an existing home.
Let' s talk about FHA condos once you know what an FHA loan is.
What are FHA-approved condos and how to qualify?
A condominium, commonly known as a condo, is a housing or residential building with several units that are each separately owned and surrounded by common areas that are jointly owned. An FHA-approved condo is any condo unit that meets FHA loan eligibility requirements.
- 1. The credit score should be 500 or higher
- 2. Have at least a 3.5% down payment of the purchase price of the condo
- 3. 43% or lower debt-to-income ratio
- 4. Condo must be your primary residence
- 5. 1.75% upfront premium with 0.45% to 1.05% fee paid annually
Thus, if any condo meets these FHA loan eligibility requirements, it is deemed as an FHA approved condo.
How to find FHA-approved Condos?
Have you found a condo and want to check if it is FHA approved or not? If yes, use the U.S. Department of Housing and Urban Development to find out if your desired condo is FHA approved or not.
Before you search for eligibility, you will have to write some details about the condo, including its name, ID, city, and state. Select the 'Approved' button under the 'Status' drop-down menu when you have all the required information in the tool. It will show if your condo is eligible for FHA loans or not.
Here are some more ways to use the tool as part of your FHA condo search:
- 1. Fill out all the required information, and under the 'Status' drop-down menu, select 'Rejected'. It will show a list of condos that have been rejected. But you can still request spot approval for a single unit here. If approved, your lender will work with the condo association to file paperwork.
- 2. Once you check the list of condos in your area, look at the 'Comments' column to see if the word 'Exists'. Click it to know why the complex did not receive FHA approval. Fix the issue, and you will get approved.
How to Apply for FHA Condo Loan?
If you have found your FHA-approved condo, the next part is to get an FHA condo loan. For this, you will have to go through an approval process.
Below are the standard requirements that a condo must meet to receive FHA approval:
Note that the application and approval process can be a daunting task, so you should prepare yourself for it. According to FHA, more than 150,000 condo projects are in the country, but only 6.5% qualify for FHA financing.
Pros and Cons of Buying a Condo
Below are some of the pros and cons of condos you need to consider before starting your home shopping:
- Affordable: One of the top reasons people buy condos is that they are cheaper than buying a house. According to National Association of Realtors data, the median single-family home price in the U.S. was $314,300 last year, while the median condo price sat at just $272,200.
- Shared Amenities: Depending on the condo community, you can access great amenities and opportunities to socialize with your neighbors.
- Better Security: Condo associations hire security guards to patrol the grounds, which means a safer neighborhood.
- HOA Fees: Although condo fees vary with each association, they usually range from three hundred to thousand dollars per month. This fee pays for insurance, parking lots, security, and shared amenities. So, consider your monthly budget before buying a condo.
- More Restrictions: Every condo association has its covenants and restrictions, which every member needs to follow. You might be subject to a heavy fine if you break the rules.
- Harder to Sell: A condo might be for you, but it is not for everyone. The pool of buyers vying for condos is narrow and can result in hardships while selling your property.
The Bottom Line
A condo approved by Federal Housing Administration is a good alternative if you are unable to find an affordable FHA approved house in a competitive market or want to downsize. However, finding and purchasing an FHA approved condo is not always easy. So, it is important to learn about it before making any decision as a buyer.