Buying a Condo using an FHA Loan
HUD Section 234(c) of the
National Housing Act provides authority to insure any mortgage
covering a one-family unit in a project coupled with an
undivided interest in the common areas and facilities which
serve the project. The project may include dwelling units in
detached, semidetached, row, garden-type, low- or high-rise
structures. Generally these types of properties are
referred to as Condominiums.
HUD
will insures mortgagees against losses on mortgage loans used
for buying a condo or to refinance individual units in eligible
condominium projects provided that they meet certain
guidelines.
| B. |
Applicant
Eligibility.
Eighty percent of the HUD-insured mortgages in a
condominium project must be the principal residence of the
owners (owner-occupants). |
| C. |
Maximum
Insurable Mortgage:
Same as Section 203(b) (except that the mortgage amount
must be in multiples of $50). |
| D. |
Minimum
Investment:
Same as Section 203(b). |
| E. |
Mortgage
Term:
Same as Section 203(b). |
| F. |
Mortgage
Insurance Premium:
Monthly+Upfront MI of 1.5% |
| G. |
Refinancing:
Same as Section 203(b). |
If the Condominium is not approved then the
Lender may go through the "Spot Approval" process.
The following
requirements must be satisfied before a spot loan is endorsed:
| • |
The condominium project must be
complete. There should be no ongoing or anticipated
addition of any units, common elements, and/or facilities.
|
| • |
Control of the common areas of the
project must have been turned over to the unit owners
association for at least one year. |
| • |
The owners
association must provide evidence that the project has the
appropriate hazard, liability and flood insurance.
|
| • |
Individual
units in the project must be owned in fee simple or be an
eligible leasehold interest. The project's legal documents
must provide for undivided ownership of common areas by
unit owners. By virtue of this ownership, unit owners must
have the right to use all facilities and unrestricted
common elements. |
| • |
The project's
documents should not place any legal restrictions on
conveyance. Any provisions that seek to limit the free
transferability of title is generally unacceptable. Such
restrictions include rights of first refusal and
restrictive covenants. Certain governmental or nonprofit
programs designed to assist in the purchase or rental of
low- or moderate-income housing are exempted from the
restrictions on conveyance provisions.
|
| • |
At least 90% of the units in the
project must have been sold. |
| • |
At least 51% of the units in the
project must be owner-occupied.
|
| • |
No single
entity may own more than 10% of the units in a project.
"Entity" includes an individual partnership, corporation,
limited liability company, limited liability partnership,
joint venture, investor group or other natural or legal
person qualified to hold an interest in real property. The
10% restriction does not apply when the ownership of less
than three units would disqualify an otherwise eligible
project. |
| • |
HUD recognized
that the 10% cap on the number of units that may secure
FHA insured mortgages in a given project can place a small
regime at a disadvantage, since only a few units will
invoke the limit. Accordingly, a two-tiered system was
established. For condominium projects having more than 30
units, no more than 10% of the units may have FHA insured
loans at any given time. Condominium projects consisting
of 30 units or less, can have up to 20% of the units
encumbered by FHA insured mortgages under the spot loan
rule. |
Click on the title to learn more about that program:
Standard fixed rate (FHA 203b)
Rehab Loan (FHA 203k)
Condominium Loans (FHA 234c)
FHA adjustable rate mortgage (FHA 251)
FHA
Hybrid Adjustable Rate Loans
FHA 2-1 buydown (FHA 203b,
Not Allowed on FHA 251)
Energy Efficient Mortgages Program
Reverse Mortgages for Seniors
|
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