Approvals for FHA condo spots
FHA approval rules have recently been relaxed to allow individual units to obtain FHA clearance without the entire building being authorized, making it considerably easier to obtain an FHA loan when purchasing a condo. This is known as “spot approval.”
To get spot approved, your condo must meet the following criteria:
- Your condo must be ready to move into.
- The total number of units in the building must be at least five.
- For spot-approved condos, manufactured housing (mobile houses) is not permitted.
- In buildings with 10 or more units, FHA can cover up to 10% of the units.
- If the building has fewer than ten units, FHA loans are only available for two of them.
- Your lender must submit a questionnaire to HUD for approval.
- HUD uses this questionnaire to determine whether your condo qualifies for FHA financing.
- If HUD is happy with the questionnaire responses, your unit will be designated as a new condominium project that is FHA insurable.
The benefits and drawbacks of FHA-approved condos
There are some advantages and disadvantages to acquiring an FHA-approved condo. Here are the most prevalent advantages and disadvantages:
Pros
- Loan qualification conditions are less stringent: With an FHA-approved condo, you may qualify for an FHA loan, which requires only a 3.5 percent down payment and a credit score of 580.
- Your mortgage could be less expensive: Condos are often less expensive than detached residences. Therefore your monthly payments will be lower than those of a house mortgage. An FHA loan also has lower upfront costs.