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FHA Requirements for Non-Approved Condo Projects

FHA Program Requirements for Non-Approved Condo Projects

Michael Jensen
, Mortgage and Finance Guru
Edited by Harry Jensen

The FHA recently changed its rules to make it easier to qualify for a mortgage on a condominium. In the past, if you wanted to use an FHA loan to buy a condo, the entire condo project had to be approved by the FHA.

The new guidelines enable you to get approved for an FHA mortgage on an individual unit in a condo project that is not approved by the FHA. This is a significant change in policy that should enable more people to buy and refinance condos, which tend to be a more affordable housing option than detached homes.

The new FHA condo rules take on more importance when you realize how few projects are FHA-approved. FHA condominium project guidelines are relatively strict and cover a wide range of items including the ownership composition of the project, the occupancy rate, the homeowners association (HOA) budget, the project insurance policy and any pending lawsuits.

Given these extensive requirements, less than 10% of all condominium projects in the U.S. are approved by the FHA, which limits the housing options for many prospective buyers. By enabling you to buy a single unit in a non-approved condo project, the revised FHA guidelines significantly expand the amount of condo inventory available to home shoppers.

Although single-unit approval -- also known as spot approval -- makes it easier to qualify for an FHA mortgage on an individual condo, the project is still required to meet numerous requirements, which we outline below :

Construction on the condo project must be complete and the project must have at least five units

At least 50% of the units in the condo project must be owner-occupied which means investors must own less than half of the units

If the condo project has 20 or more units, no individual or entity can own more than 10% of the units. If the project has less than 20 units, no individual or entity can own more than own unit

No more than 10% of the individual units in the condo project can have an FHA mortgage (projects with fewer than 10 condos can have a maximum of two units with an FHA loan)

The condo project's commercial  space square footage cannot exceed more than 35% of the project's total floor area

The condo project must have appropriate hazard, liability, fidelity (for projects with more than 20 units) and flood (if applicable) insurance policies and coverage levels.  Applicants must also purchase a homeowner insurance policy that covers their individual unit (also called a "Walls-In" or HO-6 policy)

The homeowners association (HOA) is required to have sufficient reserves for capital expenditures and maintenance

No more than 15% of units in the project can be late on their HOA dues

The condo project cannot have experienced a "financial distress event" such as a bankruptcy or foreclosure within the past three years

The condo project cannot be involved in an active lawsuit that is not covered by its insurance

The lender is required to submit a five page form called a HUD-9991 (Condominium Loan Level/Single-Unit Approval Questionnaire) that includes the condo project information listed above

As you can see, if a condo project is not FHA-approved, the project is still required to meet an extensive set of requirements. If the condominium project you are looking at meets these conditions, you can use an FHA mortgage to buy an individual unit, which may make it easier to qualify for financing. Please note that the new FHA condo guidelines are effective as of October 15, 2019.

The FHA program is provided by traditional lenders including banks, mortgage brokers and credit unions. We recommend that you contact multiple lenders in the table below to find the best loan terms for a condo mortgage.

Current FHA Mortgage Rates in Ashburn, Virginia as of April 25, 2024
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Rate data provided by Displayed by ICB, a division of Mortgage Research Center, NMLS #1907, Equal Housing Opportunity. Payments do not include taxes or insurance premiums. Actual payments will be greater with taxes and insurance included. Read through our lender table disclaimer for more information on rates and product details.

The new FHA condo rules apply to both purchases and refinances. So if you have been unable to refinance the mortgage on your condo because your project is not approved, you may be able to refinance with an FHA loan.

In addition to using more flexible eligibility guidelines for condo mortgages, the FHA program offers several other benefits. First, in most cases you are only required to make a down payment of 3.5% to buy a home and you only need 2.25% homeowners equity to qualify for a refinance.  Please note, however, that borrowers with credit challenges or other unique circumstances may be required to put down 10% to qualify for an FHA single-unit condo mortgage.

Review our FHA Mortgage Guide

FHA mortgage rates also tend to be lower than conventional rates because the program is insured by the government. Plus, FHA rates usually do not vary depending on your credit score which makes the program especially useful for credit-challenged applicants.

Additionally, the FHA mortgage program requires a credit score of only 500 if you put down 10% of the property purchase price and a score of only 580 if you make a down payment between 3.5% and 10%. The minimum credit score required to qualify for an FHA loan is lower than for most conventional mortgage programs.

Use ourFHA MORTGAGE QUALIFICATION CALCULATORto determine the FHA loan you can afford

The downsides of an FHA mortgage include mortgage insurance and loan limits. The FHA program requires you to pay an upfront and monthly mortgage insurance premium (MIP) which increase your closing costs and monthly payment. Unlike private mortgage insurance (PMI) for a conventional loan, ongoing FHA mortgage insurance is non-cancellable in most cases, which means you are required to pay it for your entire mortgage.

The FHA also applies loan limits that cap the maximum mortgage amount you are eligible for. FHA loan limits vary by county. If the condo you want to buy or refinance is more expensive, be sure to confirm that the mortgage you want is below the applicable loan limit.

Finally, it is important to highlight that the new condo mortgage rules only apply to FHA loans and not conventional or VA mortgages. Although these programs may change their guidelines in the future, getting approved for a mortgage on a condo in a project that is not approved can be highly challenging if not impossible with a conventional or VA loan.

Review How to Get a Mortgage on a Condo

We will certainly keep you up to date of any changes to condo mortgage guidelines going forward but in the meantime, the FHA program may be your best option.


"FHA Issues New Condominium Approval Rule."  HUD No. 19-121.  U.S. Department of Housing and Urban Development, August 14 2019.  Web.

"Form HUD-9991, FHA Condominium Loan Level/Single-Unit Approval Questionnaire."  Federal Housing Administration.  U.S. Department of Housing and Urban Development, 2019.  Web.

"II.A.8.p.iii. Single-Unit Approval."  FHA Single Family Housing Policy Handbook 4000.1.  Federal Housing Administration, January 2 2020.  Web.

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About the author
Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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