Having a little trouble qualifying to purchase a condo, especially if you’re a first-time buyer? Help could be on the way, thanks to a brand-new rule from the federal Department of Housing and Urban Development (HUD).

According to HUD, it’s part of an effort to promote affordable and sustainable homeownership, especially among creditworthy first-time buyers. The new policy will allow certain individual condominium units to be eligible for FHA mortgage insurance, even if the condominium project is not FHA-approved.

First things first

Sounds interesting, but what exactly is FHA mortgage insurance, and why does the condo project need to be approved? We turned to Danny Valentini, our company’s Southern California Regional Mortgage Manager with our partner Prosperity Home Mortgage, to provide some answers on the process that might get you one step closer to holding the keys to that condo you’ve been craving.

What is the FHA?

The Federal Housing Administration provides mortgage insurance on loans made by FHA-approved lenders throughout the U.S. and its territories. FHA insures mortgages on single-family homes and multifamily properties.

What is an FHA loan?

It is a mortgage insured by the FHA, especially popular among first-time homebuyers because it allows a down payment of 3.5% for credit scores of 580+, and 10% down for scores of 500-579.

“An FHA loan allows more flexibility because it generally offers a higher debt-to-overall-income ratio than conventional loans,” Danny said. “And the 3.5% funds for the down payment can be borrowed or gifted.”

Is the FHA a mortgage lender?

No. It insures mortgage loans from approved lenders. In turn, these lenders originate loans to people who meet FHA guidelines.

What are FHA-approved condos?

FHA condos are simply residential properties that meet HUD’s specific requirements that allow financing with an FHA loan. If you’re looking to buy a condo with an FHA loan, the condo complex must meet FHA requirements.

What are some of the provisions of the new HUD condo guidelines?

“It goes without saying that condominiums are often the most affordable option for first-time home buyers, small families, and those in urban areas,” National Association of REALTORS® (NAR) President John Smaby said. “This ruling, which culminates years of collaboration between HUD and NAR, will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people.”

Specifically, the new rules will:

• Extend FHA certifications on condo developments from two years to three years, reducing the compliance burden on condo boards.
• Allow for single-unit mortgage approvals—often known as spot approvals—that will enable FHA insurance of individual condo units, even if the property does not have FHA approval.
• Secure additional flexibility in the ratio of investors to owner-occupants allowed for FHA financing in a condo building or development.

More condo ownership expected

HUD states that the vast majority (84 percent) of FHA-insured condo buyers have never owned a home before. While there are more than 150,000 condo projects in the U.S., only 6.5 percent are approved to participate in FHA’s mortgage insurance programs. It is estimated that 20,000 to 60,000 condominium units could become eligible for FHA-insured financing annually as a result of FHA’s new policy.

Get started

FHA or otherwise, our real estate agents can help you find the ideal financing options. Get in touch with one today. And check out the Prosperity Home Mortgage website to learn more.