FHA Condo Approval Guidelines


Basic Requirements

  • Rentals vs. Owners: 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% (so up to 65% can be rentals).  A special set of additional guidelines will apply.  Condo complexes with at least 3 years of very stable finances, low delinquency rates, and an up-to-date Reserve Study may qualify for this exception.
  • Commercial Space: No more than 50% of the property can be used as commercial space
  • Delinquent Dues:  No more than 15% of units can be delinquent in their HOA assessments for more than 60 days
  • 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. (New rule as of 10/15/2019)
  • No more than 50% concentration of FHA Loans within the community

Max 65% Renters Acceptable

Max 15% Delinquent Accts.

Max 49% Commercial Floor Space

Max 50% FHA Concentration

Reserve Requirements

  • 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)

10% of total budget must go toward reserves

Budget 10%

Insurance Requirements

Master or Blanket – Must be 100% of replacement cost of condominium, not including foundation or land

General Liability – Insures 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 floodplain.  If required, it must be 100% replacement cost issued by NFIP.

Master / Blanket - 100% Replacement
General Liability $1,000,000
Flood (If required) 100% Replacement
Fidelity (3 months dues + Reserves)

Leasing Restrictions

Acceptable Leasing

Silent – No leasing restrictions in governing documents

Leasing Caps – A limited number of rentals permitted in the community

Board may require a copy of the lease

All leases must be in writing

Provide management or the Board with tenant information including names and address

A Requirement that the lease conforms to the legal governing documents of the association

Set minimum and/or maximum lease periods

Minimum must be 30 days OR state “no transient rentals”

Sometimes Acceptable

Assignment of Rents – A requirement that rental income will be assigned to the association if the unit owner is delinquent in the payment of assessments

Corporate leasing restrictions

Require that the lease be on a community-specific form

Non-Acceptable Leasing Restrictions

Require potential tenants to “meet” with the Board – The only exception is if the “meeting” is strictly an orientation to the community and not mandatory

Require unit owner to check the Registered Sex Offenders list before leasing to a potential tenant

Community leasing Ban – A Minimum of one unit must be permitted to be leased at any given time

Seasoning Clause – unit owner must own the condo for a period of time prior to being allowed to lease

Require Board/HOA approval of lease – unless the “approval” is specifically for monitoring the number of rentals, this must be clear and recorded in a legal instrument. Any ambiguity will result in rejection

Allow accommodations typically associated with a hotel, such as a maid or front desk service.

Have the power to void leases

Require credit references or criminal background checks – The Unit Owner may require these, but not the HOA. Many of the condominiums that we review in Florida do not qualify for FHA Condo approval for this reason.

Required Documents for FHA Condo Approval

There are also several documents needed for FHA Condo Approval.  The Board of Directors or Management Company is responsible for maintaining and storing most Association Documents.  We are experts in obtaining documents available by public record; however, private Association documents are only available from the Board or Management Company. Click here to see a list of the documents needed for FHA Condo Approval.

Special Cases

FHA Condo Approval Guidelines: 2-4 unit condo complexes

There are different FHA Condo Approval guidelines for 2-4 unit communities.  Many times these smaller communities do not have shared expenses, or have very few.  Communities without shared expenses typically do not have a community bank account, a budget, or any financial reports, so the FHA will offer an alternative known as a “Memorandum of Understanding.”

Memorandum of Understanding

A Memorandum of Understanding establishes the responsibilities and maintenance obligations of each unit owner.  Each owner will need to sign and record the memorandum with the County.  An in-state attorney should prepare the Memorandum of Understanding. The cost is usually  $200-$500 depending on the size of the community and the attorney.

By providing this document, the association no longer needs to provide financial reports, or comply with reserve requirements.  With this document, they will meet the FHA Condo Approval guidelines.

FHA Condo Approval Guidelines: New Construction

New Construction also has its own FHA Condo Approval Guidelines. To gain FHA approval for a project that is still under construction, recently converted, or less than 12 months old, a special set of guidelines will apply.

The Developer will need to pre-sell, or have under contract, at least 30% of the units in Phase 1 to become FHA Condo Approved. If a project does not meet this requirement, we cannot continue.

Older condominiums require a list of 10 documents to become FHA Approved. New and Under-Construction projects require a significant amount of additional documentation. These include environmental reports, site photographs, and permits.

The fee for a new construction project is $1,500 in total. This is nonrefundable, but we will work with the project until it becomes approved.