You list your condo for sale, and your agent calls — she has a buyer. You’re mentally packing your bags, but not so fast. The buyer has a Fair Housing Administration (FHA) loan approval. And that means your condo association needs FHA approval, too.
If you’re thinking about selling your condo, consider checking to see if your community is FHA-approved. A certified complex could help you sell faster, particularly in a buyer’s market when sellers vie for offers.
“[FHA approval] opens your buyer pool to so many more buyers,” says Ellen Connelly, a top Massachusetts real estate agent who’s sold 52 more condos than the average agent in her area. That’s because FHA lenders approve first-time homebuyers who may not otherwise qualify for a conventional mortgage.
The National Association of Realtors® reported in March 2021 that 16% of homebuyers financed their home with an FHA loan. FHA’s primary draw for buyers: accessibility. Among other benefits, FHA loan borrowers can qualify for a mortgage with a credit score as low as 500 with a 10% down payment, or 580 or above with a 3.5% down payment. By contrast, conventional loan borrowers will usually need a credit score of 620 or above.
While a few clicks on the U.S. Department of Housing and Urban Development (HUD) website will tell you if your condo has FHA approval, certifying a community without approval isn’t as easy. Long processing times or a homeowner association’s (HOA) reluctance to file the paperwork can quickly dash a condo owner’s hope for timely FHA approval.
To find out about FHA’s condo approval process, we spoke with condo expert Connelly about her experience guiding clients through FHA transactions. She details why FHA requires project approval, how to find out if your community has it, and how the approval process works.
Here’s why the FHA must approve condos
FHA loans are a type of mortgage that FHA, a division of HUD, insures. With FHA backing, lenders offer loans to homebuyers who may not otherwise qualify for a mortgage. Compared to most conventional loans, FHA credit underwriting guidelines generally aren’t as stringent.
As the loan insurer, FHA dictates the eligibility guidelines that the buyer and the buyer’s property must meet. For condos, the FHA must approve that the complex meets HUD’s guidelines in order for a buyer to purchase the property with an FHA loan. But why is FHA so interested in the entire community when it’s insuring just one unit?
FHA wants to know that the HOA is solvent and well-managed before they guarantee the loan. The ownership interest in your unit links you to the other owners in your condo complex. If a large percentage of owners suddenly stop contributing their dues, or if HOA funds are mismanaged, those financial issues could impact the entire community. A poorly managed HOA could negatively affect the value of the individual units.
To protect its interests, FHA only insures loans for condos within an approved community. For approval, the community’s HOA must pass FHA’s review and certification process.
- How many units are owner-occupied
- How many units are owned by a single person or entity
- How many owners are past due on their HOA bills
- Whether the HOA is involved in pending litigation
- Whether financials show adequate funds for maintenance and reserves for capital funding
This website tells you if your condo is FHA approved
Follow these steps to find out if your condo is FHA-approved:
- Visit the official HUD website for FHA condo approvals and search for your community.
- For best results, don’t fill out every field.
- Try searching by your city, state, and zip code.
- Navigate the list of results by HOA name.
- If the results list is too long, add the first few letters of your HOA name into the ‘Condo Name’ field before searching.
Once you locate your condo community on the results page, confirm its status:
- Approved: Congratulations! Your condo has FHA approval, and you can sell to an FHA-approved buyer until the listed expiration date.
- Approved (expired): Your condo complex was approved, but the certification expiration has lapsed. Your HOA needs to go through FHA’s recertification process before you can sell to an FHA buyer.
- Rejected: FHA reviewed your HOA’s documents, but the condo project didn’t meet their requirements. Check the comments section for available notes about why FHA declined the application.
If you can’t find your condo association or your search results aren’t ‘Approved,’ check HUD’s list of FHA condo submissions. You’ll be able to find out if your HOA has submitted an application that the FHA hasn’t yet reviewed.
If your condo isn’t FHA approved, you’ll need your HOA’s cooperation — and three months for certification
If your condo isn’t approved and you want to sell to an FHA-backed buyer, your HOA needs to get involved. The FHA won’t approve a condo project without the HOA’s documentation and a certification fee.
One alternative is to have the buyer’s lender submit the FHA application on behalf of the HOA. Another option allows for single-unit condo approval, but the entire complex still must meet FHA’s requirements. In any case, you’ll need the HOA’s cooperation to generate the required documents.
According to Connelly, some HOAs don’t want to deal with the time or expense in preparing FHA’s submission package. FHA approval isn’t in perpetuity: It expires after three years. After that, the HOA would need to go through a recertification process. And if an HOA’s approval lapses for six months, the community must go through the full approval process again.
Still, there’s no harm in asking if you have an offer from an FHA-backed buyer on the table. “I would approach someone on the board of the condo association and ask them if you can pursue FHA approval,” Connelly advises.
She also says that market conditions could sway an HOA’s decision. If there are fewer FHA buyers because of relaxed conventional loan requirements, or if it’s a seller’s market brimming with eager homebuyers, the association may not want to make an effort for FHA approval. On the flip side, in a buyer’s market, FHA approval could help condo owners sell their properties.
Even with your HOA’s cooperation, FHA condo approval takes patience. While FHA estimates a 30 day processing time, Connelly says that, in her experience, it takes much longer for approval. “It’ll take you three months — six weeks to three months — to get your complex FHA-approved,” she says.
Don’t feel bad if your condo isn’t approved — not many are
If you discover your condo complex isn’t FHA-approved, you aren’t alone. In 2019, FHA estimated that only 6.5% of condo complexes in the U.S. were approved for FHA-insured loans.
Your best bet: Find out if your condo complex has FHA approval before you list your home. Then work with your real estate agent to decide if it’s worth looking into FHA’s condo approval process.
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