FHA financing is a popular choice to finance single family homes or condominium units. FHA loans require only a 3.5% down payment minimum on purchases by the buyer, making it the most affordable option for many families.
FHA Condominium Project Guidelines
Due to the small down payment amount, many condominium projects are interested in obtaining FHA financing as a means to help borrowers purchase condominium units or owners refinance their units. The condominium project must be primarily residential, contain at least two dwelling units and can be detached, semi-detached, a row house, a walk-up, mid-rise, high-rise, including those with or without an elevator, or manufactured housing. In order to be eligible, condominium associations have to submit a comprehensive application that include several items. There are different category requirements for condominiums based on their age (condominiums not yet built, condominiums less than a year old, condominiums that are developer-controlled, and condominiums that are resident-controlled). The items generally needed for condominium approval are as follows (there may be additional requirements as well):
- Condominium Declarations
- Articles of Incorporation
- Balance Sheet (less than 90 days old)
- Recent Income and Expense Sheets (No more than 10% of the units are in arrears of more than 60 days past due)
- Budget (less than one year old)
- Year-End Financials or an Audit
- Specific Units that are Rented or Investor Owned (Not more than 65%, a recent change from 50%)
- Management Company Agreement (if there is one)
- Minutes from the last two association meetings
FHA Reserve Funding Guidelines
Within the budget, one of the items pertains to reserves for replacement funding. Reserves for replacement are the long-term planning portion of the budget to replace capital items with an expected life of more than a year. Some examples of reserve items are roofing, painting, paving elevators, swimming pools, etc. The requirements for FHA reserves for replacement are as follows:
- Provide for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least ten 10% of the budget for associations that have less than 50% of their units rented. If 50% – 65% is rented, than the reserve requirement must be at least 20% of the budget.
- A current reserve study prepared by a qualified company within the last 24 months if less than 10% of the budget for reserves.
- Funds to cover the total cost of any items identified in the reserve study or engineer’s report that need to be replaced within five years from the date of the study must be deposited in the association’s reserve account.
The FHA condominium loan guidelines and qualifications are changing and evolving over time. It is a good idea to check the HUD federal website periodically to see if their have been changes since this posting.