FHA To Allow Condo ‘Spot Approvals’

FHA to bring back a guideline banned in 2010

FHA condo mortgage financing has long been complex and hard to get. The current rules are so restrictive that more than 90% of the nation’s 150,000 condo projects do not qualify for FHA-backed mortgages.

But now HUD is simplifying FHA condo mortgage rules.

In October 2019, FHA will again allow “spot approvals” — the practice of approving for FHA financing single units within unapproved condo complexes.

That option was eliminated from FHA guidelines almost a decade ago.

Ready to finally buy a condo with an FHA loan? Now could be the time.

Likely benefits of new rules

The new standards will make FHA condo financing cheaper and more available. HUD estimates that units in an additional 20,000 to 60,000 projects will be eligible for FHA loans once the change takes place on October 15th, 2019. We might see other results as well.

  • There will be more inventory available for sale with FHA financing. That’s financing which generally requires just 3.5% down.
  • We’re likely to see firmer condo prices as more buyers come into the marketplace.
  • The new standard essentially brings back the concept of “spot approvals” for FHA condo loans.


How condos are different than single-family homes

A home on a plot of land is generally “fee-simple” real estate. You own the house and the land. You can decide such issues as what color to paint the place, if you want to add a pool, a fence, third car garage, etc. whether or not to rent it, and how it should be financed.

With condominiums, you own the unit and have rights to the use of complexes common areas. You pay fees to the condominium association, generally known as a condo association (COA). Condo associations own the common areas and typically take care of external maintenance. They also have rules.

An COA may limit or ban unit rentals. It can decide what exterior colors and materials are allowed. The homeowners association can decide how much is necessary for reserves and special assessments adjusting the monthly condo dues accordingly. It can foreclose on your property if you fail to pay the condo dues.

Pre-October 15 FHA condo mortgage rules

HUD wants to make sure COA issues will not drag down condo values, especially the value of units financed with FHA-insured mortgages. As a result, HUD now has 95 pages of condo requirements.

  • No more than 10 percent of the units may be owned by one investor or entity, including the developer. There’s an exception for nonprofit ownership.
  • Many financial documents must be reviewed before the project is FHA certified. This can include the budget, bank statements, and current balance sheet.
  • Substantial reserves must be maintained. Funds must be on hand for repairs expected during the next five years.
  • Dues must be current. Not just for the unit being financed, but the majority of HOA members. No more than 15 percent of the total units can be in arrears.

Someone has to review and certify COA docs, budgets and records before a condo community can be FHA approved. That review isn’t cheap and gets paid by the COA to maintain the marketability of the units in the complex. Also, under the current rules, condo projects must be re-certified every two years. That’s more money.

Not surprisingly, condo mortgages represent just 2% of all FHA loan volume.

Post-October 15 FHA condo mortgage rules

Starting October 15th HUD will insure mortgages for selected condominium units in projects that are not currently approved.

In other words, FHA will allow you to buy an individual unit within an unapproved condo complex, under a “spot approval,” and option which was eliminate in 2010.

Under these new guidelines, FHA financing will be available for tens of thousands of additional condo projects. More, easier, and lower down payment financing will be beneficial for condo prices and ease the burden for both condo buyers and sellers.

Single-unit requirements

For condominium projects with 10 or more units, no more than 10% of individual condo units can be FHA-insured. Projects with fewer than 10 units may have no more than two FHA-insured units.

Investor limitations

At least half of a project’s units must be owner-occupied to qualify for FHA financing.

FHA concentration

Not more than 50% of the units in an approved project can be financing with FHA-insured mortgages.

Commercial limitations

The commercial/non-residential space within an approved condominium project not exceed 35% of the project’s total floor area. Fannie Mae and Freddie Mac also have a 35% standard. The old FHA limit was 25%.


The new rules extend the recertification requirement for approved condominium projects from two to three years.

Impact of FHA condo mortgage changes

The new rules are likely to result in additional condo sales. With more demand, there will be more pressure to generally raise condo prices. Especially in metro cores with large concentrations of condo projects, the new HUD rule should be good for both condo buyers and sellers.

Now is a great time to apply for an FHA as there’s likely to be a flurry of FHA condo buyers come mid-October. Get ahead of the crowd and get your pre-approval now.

If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please give us a call and we’d be happy to assist you!


The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Downtown Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Galena 43021 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickerington 43147 Polaris Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235

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