The Guidelines for FHA Condo Approval 2019

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.


FHA condo approval guidelines for owner occupancy and commercial space Percentage Requirements
  • 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

FHA condo approval guidelines for reserve funding and reserve accounts Reserve Funding
  • 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)

FHA condo approval guidelines for insurance coverage Insurance Coverage
  • 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 flood plane

FHA condo approval guidelines for leasing and renting Leasing
  • Leasing Restrictions in the Declarations / CCR’s / Bylaws / Rules must comply with the following:
    • Acceptable Leasing Restriction:
      • Silent – No leasing restrictions in governing documents
      • Leasing Caps – A limited number of rentals permitted in 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 Board review of leases – The board can review the lease for language and content only
      • Require that the lease be on a community-specific form
    • Never Acceptable:
      • 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 – Minimum 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
      • Restrict a unit owner’s ability to lease a unit if they are delinquent in assessments
      • 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 approval for this reason.
      • Require criminal background checks
      • Require Board/HOA approval of tenant (for any reason)
      • Have the power to void leases
      • Allow transient leasing – Defined as less than 30 days
      • Allow accommodations typically associated with a hotel, such as a maid or front desk service.

FHA condo approval guidelines for leasing and renting 2-4 unit condo complexes

The FHA treats 2-4 unit complexes slightly differently than 4+ larger 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 know as a “Memorandum of Understanding”.

A Memorandum of Understanding is a recorded document (signed by each owner within the 2-4 unit community) which solidifies the fact that each unit owner is responsible for the repair and maintenance of their own unit.  The memorandum is typically prepared by a barred attorney from the state where the condo is located. The cost is in the  $200-$500 range 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.

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:

Get FHA Condo Approval

These excerpts from the FHA Condo Approval Guidelines are for informational purposes.  If you have a specific question about your condominium community and its eligibility for FHA approval please contact us.

Required Documents

To see a list of required documents for FHA Condo Approval, click here.