Using an FHA Loan to Finance a Condo

Despite the slowdown in the national housing market, condominiums remain a popular option among home buyers. But they’re also at the heart one of one of the biggest misperceptions surrounding FHA loans.

There are some strings and limits, but make no mistake — you can obtain FHA financing to help purchase a condominium.

The Federal Housing Administration offers a program geared toward prospective condo buyers. The single largest hurdle is that buyers must find a condominium that’s part of an FHA-approved complex. You can search a database of approved condo complexes by state, city and Zip code through the U.S. Department of Housing and Urban Development here. There are almost 6,000 FHA-approved condo complexes in California and more than 1,200 in Texas.

Prospective buyers can get a 30-year loan on a condo unit. There are other restrictions concerning the building, like that it must contain at least four units. But many condo complexes, both old and new, meet these and other FHA stipulations.

Beyond that, the FHA already opens doors to competitive rates and unique savings opportunities for qualified buyers. For example, you might only have to put down 3.5 percent as a down payment. On top of that, the recently passed federal stimulus package includes an $8,000 tax credit for new home buyers that can be used to defray closing costs or even that minimum down payment. Remember, though, that the FHA does not actually issue loans — it insures them through qualified lending institutions.

The FHA’s condo program does have a few financial restrictions. If the apartment is in a building that was converted from rental housing, no mortgage insurance may be provided under unless: (1) the conversion occurred more than one year before the application for insurance; (2) the potential buyer or co-buyer was a tenant of that rental housing; or (3) the conversion of the property is sponsored by a tenant’s organization that represents a majority of the households in the project. Eighty percent of FHA-insured mortgages in the project must be made to owner-occupants.