Can You Buy a Condo With an FHA Loan?

The Federal Housing Administration (FHA) offers mortgage insurance on loans, making homeownership more accessible to a broader range of individuals. While FHA loans are a popular option due to their lower down payment requirements and flexible credit guidelines, specific conditions apply when purchasing a condominium. Not all condo units or projects qualify for FHA financing; both the individual borrower and the condo project must meet particular criteria.

Condo Project Eligibility

To obtain an FHA loan for a condominium unit, the entire condo project must meet FHA eligibility standards. Buyers should verify if a project is on the FHA-approved list, searchable on the U.S. Department of Housing and Urban Development (HUD) website. If a project is not approved, FHA financing typically cannot be obtained for units within it, though limited exceptions exist.

A primary FHA requirement for condo projects is the owner-occupancy rate. At least 50% of units must be owner-occupied. Under certain conditions, such as robust financial stability and low HOA delinquency rates, this minimum may be reduced to 35%.

The financial health of the HOA is another aspect of FHA project approval. The association must maintain sufficient reserve funds, typically allocating at least 10% of its annual budget for replacement reserves and capital expenditures. These reserves cover major repairs and unexpected costs. Additionally, the project’s delinquency rate on HOA fees must not exceed 15% of units being 60 days or more past due.

FHA guidelines restrict commercial space within a condo project to no more than 35% of the total floor area. Exceptions may allow up to 49% commercial space, provided the project maintains its residential character. Limits also apply to single entity ownership. In projects with 20 or more units, no single investor can own more than 10% of units. For projects with fewer than 20 units, a single entity may own no more than one unit.

FHA-approved condo projects must undergo recertification every three years to maintain eligibility. While approval is typically initiated by the HOA or developer, a “Single-Unit Approval” (SUA) process exists for individual units in non-approved projects under specific criteria. These include the project having at least five units, a limited concentration of existing FHA-insured loans, and meeting owner-occupancy and commercial space limits.

Borrower Qualification Requirements

Even with an FHA-approved condo project, individual borrowers must meet FHA’s personal financial eligibility standards. A primary consideration is the borrower’s credit score, which influences the minimum down payment. For a credit score of 580 or higher, borrowers can qualify for the FHA’s lowest minimum down payment of 3.5%. If a borrower’s credit score falls between 500 and 579, a higher down payment of at least 10% is typically required.

The FHA assesses a borrower’s debt-to-income (DTI) ratio. Generally, the FHA aims for a front-end DTI ratio (housing costs only) of no more than 31% and a back-end DTI ratio (total monthly debt obligations) not exceeding 43% of gross monthly income. Lenders may allow higher DTI ratios, sometimes up to 50% or 57%, if the borrower demonstrates compensating factors, such as significant cash reserves or a strong credit history. HOA fees are factored into this DTI calculation.

FHA loans include Mortgage Insurance Premiums (MIP). There are two components: an Upfront Mortgage Insurance Premium (UFMIP) and an Annual Mortgage Insurance Premium (Annual MIP). The UFMIP is a one-time charge, typically 1.75% of the loan amount, payable at closing or rolled into the loan balance.

The Annual MIP is an ongoing monthly fee, with rates generally around 0.55% for most borrowers in 2025. Rates can vary based on loan term and loan-to-value ratio. For loans with a down payment of less than 10%, Annual MIP is paid for the entire loan term. A down payment of 10% or more allows for its removal after 11 years.

FHA loan applicants must demonstrate stable employment history, typically for at least two years. While the condo project’s overall eligibility is verified, an FHA appraisal is required for the specific unit being purchased. This appraisal assesses the unit’s condition and market value, ensuring it meets FHA safety, soundness, and security standards.

The FHA Condo Loan Process

Securing an FHA loan for a condominium unit begins with identifying properties that align with FHA requirements. Buyers should verify a condo project’s FHA approval status early in their search, utilizing the HUD website to check the official list of approved condominiums. This helps narrow down suitable properties and avoids potential complications.

Once an FHA-approved condo is identified, obtaining loan pre-approval is the next step. Pre-approval provides a clear understanding of the maximum loan amount a borrower qualifies for, which strengthens purchase offers. Lenders typically request financial documents such as recent pay stubs, bank statements, and tax returns to assess income, assets, and overall financial stability.

After a buyer finds an FHA-approved unit and receives pre-approval, they can make an offer on the property. It is customary to include an FHA loan contingency in the purchase agreement. This protects the buyer if the property does not meet FHA appraisal standards or if the loan is not approved, allowing withdrawal without penalty.

Upon offer acceptance, the formal loan application and underwriting process commences. This involves the FHA-required appraisal of the individual condo unit, which evaluates its condition and market value. As part of their due diligence, the lender will also review the HOA’s financial documents, including budgets, reserve studies, and delinquency reports, to confirm the project’s ongoing compliance with FHA standards.

The final stage involves closing on the FHA condo loan. During closing, all necessary paperwork is signed, funds are disbursed, and ownership is transferred. The buyer receives their final loan documents, and regular mortgage payments, including principal, interest, taxes, insurance, and the monthly mortgage insurance premium, commence according to the loan terms.