Did you know that purchasing a home with an FHA loan allows you to borrow up to 96.5 percent of the value of the home?
Whether you are looking at buying a single-family home or taking out condo loans, an FHA loan is an excellent choice for you. Buying a condo is a perfect fit for choosing a residence for you and your family, but it is essential to know how it differs from buying a single-family home.
Thankfully, you have come to the right place to learn more about condo loans and to get FHA approved for the condo you want.
Please continue reading to learn more about FHA condominium loans and how they compare to single-family home FHA loans.
What Are FHA Approved Condos?
Condominiums that the FHA has approved are condos that meet the guidelines that the FHA has set forth for FHA mortgage financing.
A general rule of thumb is that to get approved. There needs to be a high level of condos occupied by the owners and a strong condo association balance sheet, free of litigation.
Mortgage Rates for Condo Loans
FHA loans are vital to the housing market in today’s United States. This point is valid for both single-family homes as well as condominiums.
FHA loans are some of the least expensive loans for U.S. borrowers to use to finance the purchase of their first home or condo.
To qualify for an FHA loan of 96.5 percent for purchasing a home or condo, you only need a credit score above 580. If your credit score is over 500, but below 580, you will qualify for a 90 percent loan.
A significant benefit of using FHA loans for financing your home or condo is that the mortgage rates are significantly lower than conventional loans you would get from outside of the government.
On average, the loans through the government have a mortgage rate that is .25 percent lower and comes with fewer expenses when it comes to mortgage insurance.
How To Get Your Condo FHA Approved
You will need to take specific steps to get FHA approval for the condominium you want to purchase.
The first step is getting specific documentation which varies depending on the building’s history. From there, the FHA approval process takes anywhere from two weeks to three months.
You should be aware that getting the condo approved by the FHA is not the buyer of the home’s responsibility. Under normal circumstances, the responsibility for getting FHA approval falls on the developer of the condo or the developer’s agent.
When it comes to established condos, the condo association or management company of the condo needs to submit the approval package for the condo.
One of the required guidelines for FHA approval is a high level of owner-occupancy at the condo complex. The criteria that these condos need to fit are either vacation condos or family members living in the condo that they own.
The FHA considers all condos to be family owned unless they fall under one of these categories:
- Occupied by a tenant
- Vacant and put up for rent
- Vacant and put up for sale
- In escrow to a buyer who doesn’t plan to live in the condo
Every other condo that doesn’t fall under one of those four variables is eligible for FHA loans.
Owner-Occupancy Requirements for Condo Loans
When it comes to securing FHA loans for the condo of your dreams, there are specific requirements that the condo needs to meet.
The Housing Opportunity Through Modernization Act of 2016 altered the requirements of an FHA loan for condos, making them easier to finance. The Department of Housing and Urban Development extended this act.
The maximum percent of rental and investment condos rose from 50 percent up to almost 65 percent through this act. This option makes a world of difference in vacation destinations with a high volume of holiday rentals.
For a condo to take full advantage of these guidelines, it must meet all of the previously mentioned criteria plus all other FHA condo requirements. The other FHA requirements are:
- The project has replacement reserves equaling 20 percent
- There can’t be more than 10 percent of the units in arrears
- The condo needs to have 3 years of acceptable documentation of finances
- The project needs to be at least 12 months old
It is important to note that some lenders will issue mortgage approvals to an FHA borrower before a condo building meeting the owner-occupancy requirements.
Despite that, the loan cannot close until the condo project meets all of those requirements.
Pros of FHA-Approved Condos
A big pro of FHA-approved condos is that there is a much higher pool of applicants. The Department of Housing and Urban Development believes that up to 84 percent of FHA-insured buyers of condos have not owned a home before.
This option minimizes open or vacant units while increasing the number of potential buyers capable of being approved for a mortgage for a condo.
Another benefit, when compared to single-family homes, is that there are very flexible terms for FHA-approved condos. They have low down payments a d lenient credit requirements.
There are also more choices for buyers when it comes to FHA-approved condos. The more FHA-approved condos there are on the market, the more opportunities for buyers to own a home and build equity.
Are You Ready To Get Your FHA Loan?
FHA loans are an excellent way for a first-time homeowner to get a great deal and a great mortgage rate on a condominium. The available condo loans will allow you to own a condo and build equity while only needing to put as little as 3.5 percent money down.
Click here to get a quote for your FHA loan and get started with buying your first condo today!
7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with each mortgage transaction phase. If you are searching for a home loan in New Jersey, Pennsylvania, Virginia, Delaware, Maryland, New York, or Florida, please contact us today so that we can determine the best Mortgage Lender to place your loan with and get you the best possible rate and program.