FHA-Approved Condos: How and Where to Find Them

It’s possible to buy a condo using an FHA loan. However, not all condos are eligible: The Federal Housing Administration requires that all potential units and communities first go through an approval process.

Here’s what you need to know about FHA-approved condos, including how and where to find them.

What is an FHA-approved condo?

An “FHA-approved condo” refers to any condominium unit that has been financed by a loan backed by the Federal Housing Administration (FHA). The condo unit must meet FHA appraisal standards to be approved for an FHA loan, among other requirements (that we explain more below).

Before 2019, the entire condominium complex had to be approved for even one of its units to qualify for FHA financing. Today, individual units can still receive approval, regardless of whether the entire complex is FHA-approved.

Why is FHA condo approval necessary?

Since FHA-financed condos are insured by federal funds, HUD strives to reduce the risk of default on these loans. In particular, the agency sets certain requirements to help ensure that the resale value of these condos won’t decrease over time.

As a result, condominium units need to go through one of two approval processes to ensure that their value is sustainable. These processes are known as the HUD Review and Approval Process (HRAP) and the Direct Endorsement Lender Review and Approval Process (DELRAP). DELRAP is reserved for lenders who are trained in HUD’s approval process and have been given the authority to act independently.

Once approved through either method, the condo is given a unique condo ID number and submission number. These steps signify that the community can accept FHA loans.

Read more on what to know about FHA loans.

What is the FHA?

The FHA is part of the U.S. Department of Housing and Urban Development (HUD), which administers federal funds to localized agencies that manage housing for low-income individuals. HUD’s funds insure FHA loans, making them less risky for lenders to accept. In exchange, the lenders are able to offer borrowers more lenient eligibility criteria, such as lower down payment and credit score requirements.

How FHA condo approval works

If a condo unit isn’t currently FHA-approved, interested borrowers have the right to initiate the approval process. Keep in mind, however, that receiving FHA approval for a condo unit or community is more complicated than getting approval for a single-family home.

 In addition to imposing the standard FHA approval requirements, HUD also sets expectations for the viability of the condo community as a whole, since the community’s health also affects property values.

FHA condo approval requirements

Here’s a closer look at what will be evaluated during the approval process:

Traditional FHA requirements

• Credit score: You’ll need at least a 500 credit score to qualify for an FHA loan.
• Down payment: If you have a 580 score or higher, you’ll only be required to make a 3.5% down payment. On the other hand, if your score is between 500 and 579, you’re required to make a 10% down payment.
• Debt-to-income (DTI) ratio: Each lender sets their own requirements for your DTI ratio. However, most lenders prefer to see a 43% ratio or lower.
• FHA mortgage insurance premium (MIP): You’ll pay two types of mortgage insurance with an FHA loan. Your upfront MIP will be equal to 1.75% of the loan amount, while your annual MIP will depend on a few factors, including your loan-to-value (LTV) ratio, down payment and loan term.
• Primary residence: The condo must serve as your primary residence, or the home where you spend most of the year.

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Condo-specific FHA requirements

• The condo project must be complete and ready for occupancy
• The association must hold adequate insurance coverage equal to 100% of its replacement cost
• At least 50% of units must be owner-occupied
• No more than 35% of the space can be used for commercial purposes
• At least 10% of the association’s budget must be held in cash reserves
• At least 85% of unit owners must be current on their condo association dues
• No more than 50% of the units may be FHA-insured
• Associations must re-apply to be FHA-approved every three years

How to find FHA-approved condos

The process for finding FHA-approved condos is simple. Input your desired state and county into HUD’s FHA-approved condominium search tool. From there, you’ll see a list of all the condo communities in the area that have already gone through the approval process.

If you don’t see your desired condo community on the list, reach out to the association to ask whether their building is eligible and if the FHA approval process has already been started.

The pros and cons of FHA-approved condos

Buying an FHA-approved condo has its benefits and drawbacks, much like any other financial decision. Here’s what you may want to consider as you weigh your options:

 See current FHA mortgage rates to compare rate offers from top lenders today.

Alternative options for condo loans

• Fannie Mae and Freddie Mac condominium loans: Fannie Mae HomeReady and Freddie Mac Home Possible are two conventional home loan programs that are aimed at helping low-income homebuyers purchase a home. They come with down payments as low as 3% and can be used to purchase condo units, but you’ll need a 620 credit score or higher to qualify.
• VA condominium loans: Eligible military borrowers and certain spouses can purchase a condo using a loan backed by the U.S. Department of Veterans Affairs (VA). VA loans don’t require a down payment or mortgage insurance. However, individual lenders may impose their own qualifying standards.
• USDA condominium loans: The U.S. Department of Agriculture (USDA) will guarantee loans for condo units in eligible rural areas. There’s no minimum credit score requirement for USDA loans — however, income limits apply.