The Steps to Getting an FHA Single Unit Approval on a Condo
Buying a condominium is now easy thanks to the availability of FHA loans. Moreover, there is a broader selection of condominiums than how was some years back. This is good news to those looking to buy and finance their purchase using an FHA loan.
If you are one of the home buyers, then you need to be fully aware of the FHA single-unit approval process. The FHA single unit process is tailored to help you acquire a single unit condo easily and conveniently.
In this case, it does not matter whether the entire condominium complex has the FHA’s approval or not provided that you follow the laid down steps. This option plays a significant role in helping new homeowners find the right condos for their needs.
Furthermore, the FHA single unit approval enables homebuyers to look beyond the narrow selection of condominiums projects.
However, condo units that are under FHA single unit approval need to meet all the FHA rigorous standards. This means that you as a home buyer have a wider range of choices when it comes to the safety and security of your new house.
Read on to learn more about the FHA’s single-unit approval process.
What Does FHA Single Unit Approval Entail?
To begin with, FHA is a short form for the Federal Housing Administration. Formerly known as the Spot Approval, FHA came up with the single unit approval or SUA option to provide new guidelines on the condominium approval process.
This policy became effective on October 15th, 2019 as part and parcel of the FHA broader administration’s objective. Its main goal is to significantly reduce regulatory barriers that are currently restricting the affordability of homeownership among potential home buyers.
In simple words, the newly introduced Federal Housing Administration single unit approval favors individuals with low credit scores and limited financial resources.
By so doing, the FHA enables more people to easily meet requirements for a low-down-payment mortgage on condominiums.
In other words, FHA helps aspiring homeowners acquire condos without being restricted to single-family home purchases. This is a noble cause, given that condominiums are typically cheaper than most houses in different neighborhoods.
Therefore, you can say that FHA single-unit approval makes the affordability of condos an easier and better option for individuals with lower incomes.
At the moment, there are about 150,000 condo projects in the US. This is according to Housing and Urban Development (HUD) report. Out of these projects, only 6.5% are already approved for FHA financing, and this is good news to home buyers with limited financial resources.
Keep in mind that a single unit approval process is necessary if you are looking to own a condominium in a project that is not FHA-approved.
With that being saint, it is wise to do a little homework to find out whether the house/home you are about to buy falls within the already approved condo project.
In this regard, you should consider confirming all details from the HUD database. However, not every condominium unit meets all the requirements of FHA single unit approval.
This is the main reason you need to understand the whole process involving FAH single unit approval.
What are the FHA Single Unit Approval Guidelines?
The Federal Housing Administration single-unit approval guidelines are still in the pipeline. This piece of information means that the information required may not be available by the time you visit the property you want to buy.
On the positive side, you are not the person responsible to look for these guidelines regarding the FHA single unit approval for your condominium purchase. Your lender will take the necessary steps on your behalf.
The lender will most likely find out all the details and answers to the requests about the FHA single-unit approval.
Even though you will not be involved in looking for the information needed, it still is helpful to know the guidelines followed during the approval process.
For that reason, you may take your time to ask the person in charge of the condominium’s Homeowners Association or HOA for more guidance before you decide on a particular property.
Below are the single unit approval guidelines you need to know. These guidelines involve the following:
FHA single unit approval for the existing construction only - One thing you need to know is that single unit approval or SUA is unavailable for new construction. This includes condominium projects, especially those built in different phases with some sections already completed while others are still under construction.
Completion of condos - For the approval to take place, the condominium complex of your choice must possess a certificate of occupancy (CO). This particular CO must have been issued at least a year before the time of purchase.
Condominium size - The project regarding the condos must have not less than five single units to qualify for FHA single unit approval.
A number of existing FHA loans or FHA concentration - With this guideline, you need to know that no more than 10% or a tenth of the condo complex’s units will be financed with Federal Housing Administration loans. What this means is that in a given condominium project with let us say 5-9 units, only two units may qualify for the FHA loans.
Condominium owner-occupancy requirement - This FHA single unit guideline suggests that at least 50% or half the number of total units in a condo project must be fully occupied by their real owners and not the renters or tenants.
Condominium individual owner concentration - According to this FHA guideline, the condominium individual owner concentration or the percentage of condominium units owned by a single property owner of a related party should not exceed 10%.
To make it simple for you, this guideline states that in a single condominium project with 5-20 units the owner concentration should not exceed one condo unit.
Home Owner Association (HOA) delinquencies - This guideline states that no more than 15 of the total units in the condominium project should be 60-plus days late on their condo association dues.
Commercial space restrictions - Up to 35% of the entire building or condo project may be set aside for commercial business. Usually, this space is used for shops, restaurants, or any other type of business.
In any case, there are commercial entities included in the ongoing project, the lender will be required to accurately verify that the residential space and commercial space within a specified building are independently sustainable. The two entities should not depend on one another financially.
- Meeting other Federal Housing Administration requirements - The condominium in question would be required to pass the appraisal standards and all normal FHA property requirements.
The FHA came up with the above-mentioned guidelines to find out anything that could probably strengthen the condo’s value or adversely affect its marketability. In this respect, you should take note that single-unit approval can not be applied to manufactured homes.
Only the constructed homes using the conventional building techniques are eligible for this type of approval, which must always follow the right steps, as explained in the next section.
FHA Condominium Single Unit Approval Process/How to Track
The good news is that getting your FHA condominium single-unit approval is not a big challenge anymore. However, the whole process requires your attention to detail. This is because it is easy for you to get confused all along.
The confusion is brought about by the properties used to help the approval process go through. But with a proper step-by-step FAH condo SUA checklist, you can always find answers to the questions you may ask while looking for your most ideal home.
Did you know that you can track FHA Condo Approval Status by clicking here?
Here are the steps needed during the Federal Housing Administration condominium single unit approval process:
Step 1 - The FHA mortgage loan qualification
Hundreds of FHA borrowers have been successful in finding condos through the FHA single-unit approval process. This is quite encouraging news to someone looking for FHA single unit approval on a condo.
Before you start the FHA condo single-unit approval process, you need to ask yourself if you truly qualify for the FHA mortgage loan on the single-unit approval condominium. Often, the FHA borrowers follow a specific criterion to qualify for the FHA mortgage loan.
So, for you to qualify for a single unit approval on your condominium of your dream, you need to fulfill the following requirements:
- Have a credit score of about 500 or even higher.
- Achieve a maximum debt-to-income ratio (DTI) of around 50% or higher.
- Make a down payment of approximately 10% (this requirement may apply to some borrowers).
The minimum downpayment you may be required to pay for your intended FHA loan is about 3.5%. This payment comes along with a credit score of around 580 or higher. Sometimes you may be required to have a credit score of 500-579 to make a down payment of about 10%.
When it comes to FHA guidelines, you as a borrower looking to purchase a single unit approval condo need to receive your approval through the Housing and Urban Development (HUD) automated underwriting platform.
Alternatively, you can have this approval done if you already have the maximum loan-to-value ratio (LTV) of about 90%. In this context, the LTV is a term that refers to the total amount you are borrowing versus how much equity you are likely to have in the property (home) at closing (this simply describes your down payment).
If you are lucky enough to be approved through the Housing and Urban Development platform, then you can take the Federal Housing Administration’s low down payment option just in the same way you would do with other qualifying property.
Should you not qualify for full automated approval, you will need to make around a 10% down payment. For instance, if the condominium sale price is about $100,000, you will have to make approximately a $10,000 down payment.
Luckily for you, FHA allows you to take advantage of gift funds together with down payment assistance. These two financial options will help you cover a portion of the whole amount needed to offset the expenses of acquiring a condominium.
Step 2 - The need for FHA single unit approval
Another question you should ask yourself should go like this: “does your condominium need FHA single unit approval or not? The answer is simple and well explained.
If the condo you want to purchase is located within the Federal Housing Administration-approved development, then you will not need single unit approval (SUA). The single unit approval comes in handy only where the non-FHA-approved development is applicable.
How do you know if your property has FHA approval? Well, to find out if the property you want to purchase has an FHA approval, you need to do a thorough checking of the HUD database. Use the ZIP code when searching the HUD database for your property’s FHA approval.
On the other hand, you may use the specific condo’s project’s name during the search for the FHA approval. In this sense, your condominium complex will come up in the form of “approved” and this means that you are qualified for FHA financing without the need for single unit approval.
Conversely, if your condominium complex appears as “withdrawn”, “expired” or “rejected” on the HUD database, just know you need the single unit approval. The same case applies when you don’t see your condominium project in the HUD database.
Step 3 - Consider an FHA authorized lender during the application process
Even though the FHA insures FHA condominium loans, you don’t need to apply for your loan through the Federal Housing Administration.
Instead, you should consider applying for the loan with a private mortgage lender. Make sure that the private mortgage lender of your choice issues FHA-backed loans.
After you have found the right FHA-approved lender, let your loan officer know that you are seeking single-unit approval for a condominium.
In such a case scenario, the loan offer will go ahead to apply for a case number. The officer will also make a follow-up of your FHA’s approval process.
Step 4 - Your loan lender requests single unit approval
Following a successful application of a case number and making a follow-up of the Federal Housing Administration’s approval process on your behavior, the lender will make a request for a single unit approval.
This process will come in handy after reviewing the required documents. Thereafter, your lender will proceed to submit a Federal Housing Administration questionnaire or Form HUD 9991 to the management company or condominium’s home owner’s association (HOA).
Once submitted to the relevant entity, the FHA questionnaire will be filled out by a representative before passing it to your mortgage lender. The lender will take the filled-out questionnaire to the Federal Housing Administration for approval.
In this regard, the FHA will issue the final approval. Once this approval is received, your mortgage lender will go ahead with the loan process.
The issued approval will be a little bit different from the FHA Case Number that was acquired at the start of the loan process. The approval process, however, takes approximately three business days.
Why FHA Does Not Approve the Entire Complex
Besides offering SUA within non-approved condominium complexes, the Federal Housing Administration approves the whole condo development project.
This information should tell you that if you are purchasing your condo within a complex that is already FHA approved you will not have to worry about FHA single unit approval. That does not mean that all condo Home Owners Associations or developers need the FHA’s approval.
Approval for a condominium development may take several months. On top of that, HOA leaders and developers will have to share financial information among themselves.
But once the condos get approved, they will have to undergo a rigorous renewal process after every three years in order to maintain their FHA approval.
Theoretically, condo complexes increase their values by acquiring and maintaining their FHA approval. This leads to the opening up of financing options to more home buyers.
As a matter of fact, today’s hot markets have seen condo buyers getting plenty of options whenever they list their units for sale even without the need for the Federal Housing Administration approval.
Are you a first time homebuyer? Learn more here!
Why FHA Treats Condominiums Differently from Single-Family Property
You might be wondering why there are so many rules about financing condominiums as opposed to single-family homes.
These extra rules are included because your condo’s value does not depend on you entirely. Other parties come in to help evaluate and determine the whole value of the condo you are looking to buy.
For example, if the Home Owners Association grossly mismanages most of its finances, then it will not be in a better position to finance major repairs on the purchased condos.
As such, gross mismanagement of finances by HOA may lower the value of condominium units. In extreme cases, poor management of finances could make condo units completely worthless.
Quite a number of condominium units do not qualify for financing because of ongoing litigation. Usually, this case arises when the litigation involves the Home Owner Association in charge and the original home builder.
In some cases, the value falls drastically if condominium units are just available to only cash buyers. Other issues come into play during the FHA's single approval on condos. Top among them is the sharing of common areas and amenities within the condominium developments.
For instance, most condo residents tend to share meeting rooms, green spaces, swimming pools, nature trails, and exercise rooms with the other condo owners in a given community.
These HOA owners’ common places have an impact on the real value of individual condominium units. So, any negligence from HOA could negatively impact the value of individual condo units.
If your condominium drops in value below the actual amount of your condo’s Federal Housing Administration insured loan, the FHA may lose its finances. All these reasons explain why FHA treats condominiums differently from traditional single-family property.
Interested in learning more about FHA loans? Click here!
Additional Option for Federal Housing Administration Borrowers
The best thing about the FHA loan is that it can make homeownership more affordable and accessible. This is attributed to the fact that FHA loans help lower the credit score not to mention the required down payments for borrowers.
The FHA single unit approval plays a significant role in opening up more condominium units to Federal Housing Administration loan borrowers looking for the most appropriate community to settle in.
As such, you need to consider this as the right time to start your pre-approval process. Your Federal Housing Administration lender will undoubtedly help you through the SUA process.
Frequently Asked Questions about FHA Single Unit Approval on Condos
How long should an FHA approval take?
According to the Federal Housing Administration, a single unit approval process may take a period of three business days for your loan to be approved.
Sometimes the process may take longer if the Housing Ownership Association does not provide the necessary information in time.
How do you get your Condo FHA approved?
As an HOA or condo developer, you may apply for Federal Housing Administration approval for your entire condo development through the FHA.
Bear in mind that FHA-approved development enables new condo buyers to use the FHA loans to finance their projects.
What are the condo qualification criteria needed for FHA loan approval?
You have to be a Federal Housing Administration borrower to qualify for an FHA condominium loan. This criterion applies if you fall within the non-approved condominium complex.
Also, the condo complex should meet all the FHA requirements.
Get in touch with your Loan Originator to learn more about your requirements and loan options in more detail.
If you are looking to secure and use a Federal Housing Administration loan within the condominium association, the condo complex will have to be FHA-approved. The entire FHA approval process takes about three business days if your application meets all the requirements.
Once approved, your FHA certification will be good for a period of three years. So, during the three years, you will be able to utilize FHA insured loan to your advantage.
The guidelines and approval steps above will help you understand the whole approval process involving the FHA single-unit approval for your condominium.