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A condo approved by the Federal Housing Administration can be a good alternative if you're unable to find an affordable FHA-approved house in a competitive market or want to downsize (and have someone else take care of the yardwork!).
Here are a few shortcuts to help you start your search for an FHA-approved condo.
» MORE: Learn the basics of FHA loans
Find FHA approved condos with HUD's search tool
The FHA is a program of the U.S. Department of Housing and Urban Development. FHA loans are often particularly attractive to first-time home buyers since they offer low down payments coupled with more lenient credit score and debt-to-income requirements than conventional mortgages.
HUD's condominium search tool is a quick way to see an FHA-approved condo list for your area. Searching the database is pretty straightforward, but here are a few tips:
Start by entering a ZIP code to limit the list to condos in your desired area. If you just click "send" without filling in any fields, you'll get results for the entire country.
To broaden your search, filter by state. If you enter a city, county or even a condo name (meaning the name of the development), you'll be prompted to choose a state, too.
To see only FHA-approved condo complexes, set the "status" drop-down menu to "approved." This way you'll know you're seeing developments where the units are eligible for an FHA condo loan. "Expired" means their approval ran out (complexes have to reapply every three years); "withdrawn" can indicate a duplicate record or that the FHA took back its approval (not a good sign).
After selecting the appropriate fields, click the little "send" button to see a list of FHA condos. Not crazy about the results? Hit the back button on your browser to try a new search.
Why are some condos not FHA approved?
Many condos are not FHA-approved because until October 2019, FHA loans were available only for condominiums located in FHA-approved developments. That meant that of the over 150,000 condo complexes across the U.S., only 6.5% — about 9,750 complexes total — were eligible for FHA financing.
That doesn't mean that 93.5% of the condo developments in the U.S. aren't up to snuff; it's likely that there are plenty of complexes near you whose developers just haven’t applied for FHA approval, so they don't show up in the search tool.
The good news: It’s now possible for borrowers to get FHA approval for single units within condo complexes that aren't FHA approved. The FHA says single-unit approvals could increase the number of FHA-approved condo units by 20,000 to 60,000 units per year.
“A condo unit that is not part of an FHA-approved complex may still be eligible for an FHA loan.”
Here's a different way to use HUD's condo lookup tool to locate more potential options:
Choose the same state, city and/or ZIP code that you entered before, but instead of choosing "approved" from the "status" drop-down menu, pick "rejected." Complexes that have been rejected are still eligible for single-unit approvals.
Click "send" and you'll see a different list of condo developments.
Look at the seventh column from the left, "Comments." See the word "Exists"? Click it and you'll be able to see why the complex didn't receive FHA approval.
In some cases, you'll turn up information that indicates the development probably isn't somewhere you would want to live — notes about homeowners association problems, for example. But you'll likely come across developments where lack of approval came down to missing paperwork. HUD is trying to make the FHA condo approval process easier for developers, though for some smaller complexes, the cost of applying can still be an issue.
What is FHA approval for condos?
FHA approval for condos in FHA-approved complexes is similar to the process for an FHA-approved house. Even if the entire development has been OK'd, you'll still need an FHA appraisal to ensure that the individual unit you want to purchase meets the agency's standards.
Now that FHA approval for condos isn't limited to full developments, you can apply through your FHA-approved lender to get single-unit approval (sometimes referred to as a "spot approval" or "spot loan"). Your lender will need to work with the complex's management or homeowners association to file paperwork with the FHA showing that the development, though unapproved, meets basic FHA standards. For example, the complex has to have at least five units, the units can't be manufactured homes and the complex can't be under construction.
Single-unit approvals are awarded on a case-by-case basis, so the condo you're eyeing could still be approved so long as the larger development meets some of the FHA guidelines. And yes, even once that paperwork's done, you'll still need an FHA appraisal.
Whether or not you've got a specific complex in mind, a buyer’s real estate agent who has experience with FHA lending can be a real asset, especially if you're a first-time home buyer. An agent can help you come up with a list of condos that meet your needs — and FHA guidelines.