What Is an FHA-Approved Condo?

FHA-approved condos are condominiums that can be financed using an FHA loan. The U.S. Department of Housing and Urban Development (HUD), which oversees the Federal Housing Administration (FHA), requires condo units and communities to undergo an approval process to be added to their list of FHA-approved condos.

Condos are generally a more affordable alternative to single-family homes, especially in urban areas where the price per square foot is much higher. Combine the lower cost of a condo with the additional benefits of an FHA loan, and you’ll see why FHA-approved condos can be an enticing option for some homebuyers.

When planning to buy a condo with an FHA loan, inform your real estate agent upfront. They may help you find an FHA-approved condo or help you get a condo unit approved by the FHA.

Why do condos require FHA approval?

Condos present additional risks beyond a traditional, single-family home, since there are multiple units on a property, and shared amenities are jointly owned and managed. FHA approval ensures that the properties within a condominium meet the FHA's safety, security, and habitability requirements.

FHA approval lowers the risk to the mortgage lender, and also benefits you as the home buyer. An FHA-approved condo protects you from potential issues arising after the purchase, such as underfunded reserve accounts or ongoing legal disputes within the condo community.

How to find FHA-approved condos

Check HUD’s website to see a current list of FHA-approved condos.  You can browse available condos near you on Zillow, and check if you pre-qualify for an FHA loan with us at Zillow Home Loans.*

How to get a condo FHA-approved

A condo community must apply and meet all the standards for FHA approval. Applications for FHA condo approval can be submitted by the mortgage lender, builder, developer, homeowners association or management company. Applications received directly from a borrower, homeowner, seller or real estate agent are generally not accepted. HUD may determine, case-by-case, that submissions from other parties are allowed.

As a homebuyer, you can request the condo association apply for approval. If the condo association agrees, they are responsible for initiating the FHA-approval process by taking the following steps:

1. Review the eligibility requirements to ensure the condo association meets the FHA condo approval standards.
2. Gather required documents, including financial statements, legal documents, project plans, and anything else the FHA requests.
3. Submit an application for FHA condo approval.

How long does FHA condo approval take?

The FHA condo approval process can take two to four weeks to complete. During this time, the FHA will conduct an on-site appraisal to ensure the condition of the unit and the property. Once the FHA approves the condo association, you can proceed with your FHA loan application.

FHA condo approval requirements

• Completed build: The condo project must be 100% complete and ready for occupancy.
• Insured: The condo association must have adequate insurance coverage that’s equal to the total of the property’s replacement cost.
• Owner-occupancy rate of 50%: At least 50% of the units within the property must be owner-occupied.
• 10% cash reserve minimum: A minimum of 10% of the condo association’s budget must be put towards cash reserves.
• Majority of owners current on HOA fees: 85% of condominium unit owners must be current on their association fees.
• FHA approval renewed: The condo association must reapply for FHA approval every three years.
• Habitable property: The condo is structurally sound, with no evidence of mold or pest infestation.
• Habitable location: The condo is located away from hazardous waste sites, oil and gas wells, petroleum lines, transmission towers, and high-voltage power lines.
• Compliance: The condominium property is in full compliance with applicable state and local law requirements.
• Accessibility: The condo property is accessible without having to pass through an easement (e.g. no shared driveways).

FHA loan approval requirements

FHA loans come with lower credit score requirements, smaller down payment minimums, and often lower interest rates compared to traditional home loans, which make qualifying for an FHA loan much easier compared to conventional options.

• Credit: A minimum credit score of 500
• Down payment: A 10% down payment for a credit score between 500 and 579 and a 3.5% down payment for a credit score of 580 or higher
• Maximum debt: A debt-to-income ratio (DTI) below 43% (however, some lenders may allow up to 55% depending on your other financial factors)
• Insurance: Two types of mortgage insurance premiums (MIP) 
• Residence: The condo must be your primary residence 
• Employment: Proof of employment and steady income

FHA condo approval restrictions

Even after obtaining FHA approval, condominium properties must continue to meet specific requirements to maintain their approval status. The FHA may impose restrictions or revoke approval if:

• The owner-occupancy ratio falls below the required level of 50%
• Financial reserves fall below the 10% budget
• The property's condition deteriorates significantly despite the collection of association fees from unit owners 
• Legal issues arise within the condo association 
• The condo association fails to reapply or renew FHA condo approval status

How to renew FHA condo approval

Recertification for FHA condo approval may be submitted by the mortgage lender, builder, developer, homeowners association, management company, or an attorney or project consultant who submits on behalf of one of the other referenced parties.

Condo approvals expire two years from the date of placement on the FHA-approved condo list. Every two years, the project needs to be re-certified to confirm that it is still in compliance with HUD requirements. The recertification process can start six months before the expiration date, until six months after the expiration date. If recertification is not concluded in this time frame, the condominium will need to be re-approved.

*An equal housing lender. NMLS ID#10287