How to Get Your Condo Project FHA Approved

The Federal Housing Administration (FHA) offers loans that often feature lower down payments and more flexible credit requirements compared to conventional mortgages. However, for a unit within a condominium project to be eligible for FHA financing, the entire project must first secure approval from the FHA. This approval process ensures that the condominium meets specific standards for financial health, structural integrity, and legal compliance.

Project Eligibility Requirements

Before applying for FHA approval, a condominium project must satisfy several stringent eligibility criteria. These requirements cover various aspects, including the project’s physical condition, financial stability, and operational governance.

The FHA examines general project standards, such as the completion status of the property. The project must be 100% complete and ready for occupancy. Owner-occupancy levels are also a significant factor, with the FHA generally requiring at least 50% of the units to be owner-occupied. In some specific circumstances, this owner-occupancy ratio may be as low as 35%, but this requires additional documentation and proof of strong financial health. Commercial space within the project is limited, typically not exceeding 35% of the total floor area.

The financial stability of the Homeowners Association (HOA) is a primary concern for the FHA. Adequate reserves must be maintained for future repairs and capital expenditures, generally requiring at least 10% of the HOA’s annual budgeted income to be allocated to a cash reserve account. If the owner-occupancy rate is lower, between 35% and 50%, the reserve requirement may increase to 20% of the annual budget. Delinquency rates for HOA assessments are also closely monitored; typically, no more than 15% of units can be more than 60 days delinquent on their assessment payments.

The FHA reviews extensive HOA documentation to assess eligibility. This includes governing documents such as Covenants, Conditions, and Restrictions (CC&Rs) and bylaws, along with the project’s master deed. The FHA scrutinizes these documents to ensure they do not contain provisions that restrict FHA financing or pose undue risks. Financial statements, including the annual budget, income and expense statements, and a balance sheet, are required to demonstrate the HOA’s fiscal health.

Insurance policies are another critical component of the review. The HOA must provide proof of adequate hazard, liability, and, if applicable, flood insurance coverage. For projects with more than 20 units, fidelity bond insurance is generally required to cover individuals handling association funds, typically for an amount equal to three months of aggregate assessments plus reserves. Legal and structural considerations also play a role, with the FHA examining any pending litigation that could financially impact the project, as well as ensuring the structural integrity of the buildings.

Specific FHA policies further impact eligibility. There are restrictions on developer control. The FHA also limits the concentration of FHA-insured loans within a project, usually to no more than 50% of the total units. Additionally, projects must address any special assessments.

Submitting the Application

Once a condominium project has compiled all necessary documentation and is confident it meets the FHA’s eligibility requirements, the next step involves formally submitting the application for approval.

There are two primary methods for submitting a condo project for FHA approval: the HUD Review and Approval Process (HRAP) and the Direct Endorsement Lender Review and Approval Process (DELRAP). Under HRAP, the application is submitted directly to the FHA (U.S. Department of Housing and Urban Development, or HUD) for review by their staff. In contrast, DELRAP allows a HUD-approved mortgagee (lender) to review and process the approval, often leading to a quicker turnaround time. While the HOA or developer can initiate the process, it is common for a HUD-approved lender to assist or submit on their behalf, particularly for DELRAP.

The application package typically includes specific FHA forms. Key among these are Form HUD-9991, the FHA Condominium Loan Level/Single-Unit Approval Questionnaire, and Form HUD-9992, the FHA Condominium Project Approval Questionnaire. These forms require detailed information about the project’s characteristics, financial health, and legal compliance, drawing directly from the documentation gathered during the eligibility assessment phase.

Compiling the complete application package involves organizing all required forms and supporting documentation. This typically includes the HOA’s governing documents, financial statements, insurance certificates, and any other relevant legal or structural reports. The submission process can vary; some lenders may have online portals for digital submission, while others might require physical mail. It is important to ensure all sections are accurately completed and all necessary attachments are included to avoid delays.

After submission, the application enters a review process. The timeline for approval can vary, generally ranging from two to four weeks, but potentially extending to several months depending on the complexity of the project and the FHA’s current workload. During this period, the FHA or the reviewing lender may request additional information or clarification regarding the submitted documents. Decisions are communicated once the review is complete, and if approved, the condominium project will be added to the FHA-approved condo list, making its units eligible for FHA-insured financing.

Maintaining Approval Status

Obtaining FHA approval is not a one-time event; condominium projects must actively maintain their approved status to ensure units remain eligible for FHA financing. This ongoing responsibility involves periodic re-certification and continuous adherence to FHA guidelines.

FHA approval typically lasts two or three years, depending on the approval method (HRAP or DELRAP). Once this period nears expiration, the condo association must initiate a re-certification process. This involves updating and resubmitting key documentation, such as current financial statements, revised budgets, updated insurance policies, and recent owner-occupancy rates, to demonstrate continued compliance with FHA standards.

The HOA has an ongoing obligation to meet the FHA’s eligibility criteria. This includes maintaining the required owner-occupancy ratios, ensuring adequate reserve funding, and keeping delinquency rates below the FHA’s thresholds. Any new litigation or structural issues that arise within the project must be promptly addressed and may need to be reported to maintain compliance. Regular financial health monitoring and proactive maintenance are important to avoid issues that could jeopardize approval.

Should a project fail to maintain compliance or neglect the re-certification process, it can lose its FHA approval. This loss of status significantly impacts unit sales, as prospective buyers relying on FHA financing will be unable to secure loans for units within the project.