January 26, 2021

FHA Certification Changes for 2021

On October 15, 2019, HUD implemented the long awaited and often discussed changes to the FHA Condominium Certification process.  In addition to the changes made to the process regarding the Full Project Approval, HUD has introduced a Single Unit Approval (SUA) process.

Below is a synopsis of the changes to the Full Project Approval process and the Single Unit Approval process.  Please note that this is not a full outline of all criteria needed to obtain either project certification or an SUA.

Key elements to Full Project Certification:

  • Project Certification Extended:  FHA Certification has been extended from 2 to 3 years.
  • Single Investor Ownership:  For properties with more than 20 units, no single investor, entity, or related party may own more than 10% of the units within the project.  For properties with 20 units or less, no individual owner, entity, or related party may own more than one unit.
  • Owner Occupancy:
    • 2-4 units:                    75% of units must be owner occupied.  
    • 5 or more units:         50% of the units must be owner occupied.

Special Exceptions:   Condominium projects may apply for an exception if they have a minimum of 35% owner occupants.  Additional financial criteria must be met.

  • Commercial Space:  commercial space must not exceed 35% of the project’s total floor area.  Exceptions can be made when the commercial space is above 35% but does not exceed 49%.  Additional requirements must be satisfied to be granted an exception.
  • Litigation:  Previous guidance did not provide information regarding the type of litigation that is not allowed.  While HUD has not allowed this type of litigation in the past, they have clarified:  
  • Project must not be subject to pending litigation in which the project sponsor is a named party and that relates to the safety, structural soundness, habitability, or functional use of the project. —- This is most commonly known as “Construction Defect” litigation.
    • Project must not be subject to pending litigation not covered by insurance or litigation that will exceed insurance coverage amounts.
  • Legal Restrictions on Conveyance:  including transfer of property (sale) and leasing.
    • Excepted Transfer Fee Covenants under 12 CFR 128 are accepted.  This includes transfer fees directly related to Ladera Ranch Master Association and Talega.
  • Project Application:   HUD has released a new 13-page application.  This application is quite cumbersome and requires signatures from either the Managing Agent or Board of Directors.  FHA Review will assist with the completion of sections of the application that require signatures.

Key elements to Single Unit Approvals:

  • FHA Concentration:  No more than 10% of units may have an FHA insured mortgage.  The concentration rate can be found on the condo lookup section of 
  • SUA Eligibility:           The SUA criteria is exactly the same as a Full Project Certification.  If the Condominium Project does not qualify for Full Project approval, they will not qualify for SUA.
  • Project Size:              Condominium project must have a minimum of 5 units.
  • Project Application:   The SUA process has a (5) page application.  This application must be completed each and every time an applicant requests a SUA within a Condominium project that is not FHA Certified.  Prior SUA applications cannot be used.  This has the potential to be quite a burden on Management Companies and BOD’s.
  • Document List:          The SUA case binder require the same documents that Full Project Certification requires.  Including all additional information regarding litigation, loans, and/or special assessments.
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