The Facts About FHA Mortgage Insurance Changes for Condominiums

The U.S. Department of Housing and Urban Development's new FHA mortgage insurance requirements for condominium associations took effect on Dec. 7, 2009.

Here is a list of several key requirements under the new FHA guidelines:

  • No more than 35% of the property's total floor area can be used for commercial purposes.
  • No more than 10% of the units may be owned by one investor, including developers/builders renting vacant and unsold units.
  • No more than 15% of the total units can be delinquent more than 30 days in paying their assessments.
  • At least 50% of the units must be owner-occupied or sold to owners who intend to occupy.
  • At least 50% of the total units in a new development must be pre-sold prior to FHA endorsement of any mortgage on any unit.
  • A condo association's actual budget (or proposed budget for new projects) must be adequate to maintain all of the community's amenities and features, fund reserves for capital expenditures and deferred maintenance (10% of the budget), and fund both insurance coverage and pay of the insurance deductibles.
  • The condominium must have hazard, flood, liability and other insurance as required by state laws or as otherwise acceptable to FHA.
  • Transfer of control of the association to unit owners must occur no later than the latest of:
    • 120 days after the date 75% of the units have been conveyed;
    • 3 years after completion of the project (after the first sale of a unit);
    • The time frame established under applicable Arizona law; or
    • 90 days after 75% sold or four years after declarant ceases sales, whichever is earlier.
  • For condominiums of four or more units, the FHA will insure mortgages of no more than 30% of the total units.
  • FHA concentration may be increased to 100% of the units if the following additional requirements are met:
    • The condominium is 100% complete and construction has been completed for at least one year;
    • 100% of the units have been sold and no entity owns more than 10% of the units;
    • The budget provides for reserves in an amount equal to at least 10% of the budget;
    • Transition of the condominium association to owner control has occurred; or
    • The owner-occupancy rate is at least 50%.

Lenders must certify that previously approved condominiums are in compliance with the new requirements. Most existing condominiums, as well as those undergoing condominium conversions, or currently under construction are affected. If your condo association is not on the FHA-approved list, you'll need to apply for approval under the new requirements.

These new changes only apply to condominium associations, not planned communities.

However, condo associations with site condominiums (single-family totally detached dwellings with no shared garages or other attached buildings) that are governed by a condominium declaration are not affected because the FHA treats these units as single-family housing. The same goes for timeshares, condominiums with multiple dwellings per unit, and projects not deemed as primarily residential.

You can search for FHA-approved condominium projects by location, name or status using the tool here: https://entp.hud.gov/idapp/html/condlook.cfm.