The Guidelines for FHA Condo Approval 2016
Although there are many eligibility factors within the FHA Condo Approval Guidelines, these are some the basics that determine eligibility. These requirements are taken directly from the FHA guidelines.
THE BASIC ELIGIBILITY GUIDELINES for FHA CONDO APPROVAL 2016
- Commercial Space – No more than 50% of property can be used as commercial space
- Delinquent Dues: No more than 15% of units can be arrear in their assessments more than 60 days
- Any investor/entity (single or multiple owner entities) may own up to 50% of the total units IF at least 50% of the total units in the complex are owner occupied as principal residences. (The previous limit was 10%)
- No more than 50%** of the units can be investor owned / rentals
- **10/26/2016 update – There is an exception to this rule, which reduces the required owner occupancy to 35%. A special set of additional guidelines will apply. The exception is only given to existing condo complexes with at least 3 years of very stable finances, and low delinquency rates.
- No more than 50% concentration of FHA Loans within the community
- Reserve funding requirement – at least 10% of all budgeted income must go toward a reserve account
- Adequate reserve funds required – This is subjective, but in our experience this means:
- Funds to cover all insurance deductibles
- Reserve Funds to cover capital repairs and replacements for the next 2 years (as determined by a recent reserve study)
- Master or Blanket – Must be 100% of replacement cost of condominium, not including foundation or land
- General Liability – insuring all common elements, and public ways
- Fidelity Bond (aka Employee Dishonesty or Crime Insurance) – for communities with 20+ units. Covers the Board of Directors and Employees that handle association funds. Must be 3 months aggregate assessments of all units + Reserves. Note: This type of insurance is different than D&O
- Flood insurance – Only required if located within 100 year flood plane
- Leasing Restrictions in the declarations / CCR’s must comply with the following:
- No transient leasing of units (defined as less than 30 days)
- No “Seasoning Clauses” (A restriction that requires a unit owner to occupy the unit for a specified time-period before they can lease) Some circumstances with hardship clauses may be OK, but its case-by-case.
- The Board of Directors cannot have the power to:
- Approve leases or deny leasing. The unit owner must have the right to lease to any tenant
- Impose background checks, credit checks, or any other type of screening for prospective tenants. The unit owner may impose these checks, but not the HOA. Many of the condominiums that we review in Florida do not qualify for FHA approval for this reason.
NOTE: These are the BASIC eligibility requirements for FHA Condo Approval. There are many other requirements which can be found in various HUD ML letters, including 4 amendments, and the HUD handbook 4000.1. We can perform a full review of your condo community to see if they meet FHA guidelines by clicking below:
To see a list of required documents for FHA Condo Approval, click here.