The Steps to Getting an FHA Single Unit Approval on a Condo

If you are one of the home buyers, then you need to be fully aware of the FHA single-unit approval process. The FHA single-unit process is tailored to help you acquire a single-unit condo easily and conveniently.

In this case, it does not matter whether the entire condominium complex has the FHA’s approval, provided that you follow the steps below. This option plays a significant role in helping new homeowners find the right condos for their needs.

Read on to learn more about the FHA’s single-unit approval process.

Key Insights

FHA Single Unit Approval (SUA) is designed to make it easier to purchase single-unit condos without needing the entire condominium complex to be FHA-approved. The SUA process benefits individuals with low credit scores and limited financial resources.

Key requirements for condos to qualify for FHA SUA include:

• The project must have at least five single units.

• No more than 10% of the units can be financed with FHA loans.

• At least 50% of the units must be owner-occupied.

• The complex must not have more than a 15% delinquency rate on condo association dues.

Condos within FHA-approved complexes do not need SUA. The FHA treats condominiums differently from single-family homes. The FHA SUA process typically takes about three business days for approval.

What Does FHA Single Unit Approval Entail?

To begin with, FHA is a short form for the Federal Housing Administration. Formerly known as the Spot Approval, FHA developed the single unit approval or SUA option to provide new guidelines on the condominium approval process.

This policy became effective on October 15th, 2019, as part and parcel of the FHA's broader administration’s objective. Its main goal is significantly reducing regulatory barriers currently restricting homeownership's affordability among potential home buyers.

Simply put, the introduced Federal Housing Administration single-unit approval favors individuals with low credit scores and limited financial resources.

By so doing, the FHA enables more people to meet the requirements for a low-down-payment mortgage on condominiums easily.

In other words, FHA helps aspiring homeowners acquire condos without being restricted to single-family home purchases. This is a noble cause, given that condominiums are typically cheaper than most houses in different neighborhoods.

Therefore, you can say that FHA single-unit approval makes condos affordable and an easier and better option for individuals with lower incomes.

At the moment, there are about 150,000 condo projects in the US. This is according to Housing and Urban Development (HUD) report. Out of these projects, only 6.5% are already approved for FHA financing, and this is good news for home buyers with limited financial resources.

Remember that a single-unit approval process is necessary to own a condominium in a project that is not FHA-approved.

That said, it is wise to do some homework to determine whether the house/home you are about to buy falls within the approved condo project.

In this regard, you should consider confirming all details from the HUD database. However, not every condominium unit meets all the requirements of FHA single-unit approval.

This is why you must understand the whole FHA single-unit approval process.

What are the FHA Single Unit Approval Guidelines?

The Federal Housing Administration single-unit approval guidelines are still in the pipeline. This information means that the required information may not be available when you visit the property you want to buy.

On the positive side, you are not responsible for looking for these guidelines regarding the FHA single-unit approval for your condominium purchase. Your lender will take the necessary steps on your behalf.

The lender will most likely find out all the details and answers to the requests about the FHA single-unit approval.

Even though you will not be involved in looking for the information needed, knowing the guidelines followed during the approval process is still helpful.

For that reason, you may take your time to ask the person in charge of the condominium’s Homeowners Association or HOA for more guidance before you decide on a particular property.

Below are the single-unit approval guidelines you need to know. These guidelines involve the following:

FHA single unit approval for the existing construction only

You need to know that single unit approval or SUA is unavailable for new construction.

This includes condominium projects, especially those built in different phases, with some sections already completed while others are still under construction.

Completion of condos

For the approval to occur, the condominium complex of your choice must possess a certificate of occupancy (CO). This particular CO must have been issued at least a year before purchase.

Condominium size

The project regarding the condos must have not less than five single units to qualify for FHA single-unit approval.

Existing FHA loans or FHA concentration

With this guideline, you need to know that no more than 10% or a tenth of the condo complexes units will be financed with Federal Housing Administration loans.

What this means is that in a given condominium project with, let us say, 5-9 units, only two units may qualify for the FHA loans.

Condominium owner-occupancy requirement

This FHA single-unit guideline suggests that at least 50% or half the total units in a condo project must be fully occupied by their real owners and not the renters or tenants.

Condominium individual owner concentration

According to this FHA guideline, the condominium individual owner concentration or the percentage of condominium units owned by a single property owner of a related party should not exceed 10%.

To simplify it, this guideline states that the owner concentration should not exceed one condo unit in a single condominium project with 5-20 units.

Home Owner Association (HOA) delinquencies

This guideline states that no more than 15 of the total units in the condominium project should be 60-plus days late on their condo association dues.

Commercial space restrictions

Up to 35% of the entire building or condo project may be set aside for commercial business. Usually, this space is used for shops, restaurants, or any other type of business.

If commercial entities are included in the ongoing project, the lender must accurately verify that the residential and commercial spaces within a specified building are independently sustainable.

The two entities should not depend on one another financially.

Meeting other Federal Housing Administration requirements

The condominium must pass the appraisal standards and all normal FHA property requirements.

As mentioned earlier, the FHA developed the guidelines to find anything that could strengthen the condo’s value or adversely affect its marketability. In this respect, you should note that single-unit approval cannot be applied to manufactured homes.

As explained in the next section, only the constructed homes using conventional building techniques are eligible for this approval, which must always follow the right steps.

FHA Condominium Single Unit Approval Process

The good news is that getting your FHA condominium single-unit approval is not a big challenge anymore. However, the whole process requires your attention to detail. This is because it is easy for you to get confused all along.

The confusion is brought about by the properties used to help the approval process go through. But with a proper step-by-step FHA condo SUA checklist, you can always find answers to your questions while looking for your ideal home.

Here are the steps needed during the Federal Housing Administration condominium single-unit approval process:

Step 1 - The FHA mortgage loan qualification

Hundreds of FHA borrowers have successfully found condos through the FHA single-unit approval process. This is quite encouraging news to someone looking for FHA single-unit approval on a condo.

Before you start the FHA condo single-unit approval process, you need to ask yourself if you truly qualify for the FHA mortgage loan on the single-unit approval condominium. Often, the FHA borrowers follow a specific criterion to qualify for the FHA mortgage loan.

So, for you to qualify for a single unit approval on the condominium of your dream, you need to fulfill the following requirements:

• Have a credit score of about 500 or even higher.

• Achieve a maximum debt-to-income ratio (DTI) of around 50% or higher.

• Make a down payment of approximately 10% (this requirement may apply to some borrowers).

The minimum downpayment you may need for your intended FHA loan is about 3.5%. This payment comes along with a credit score of around 580 or higher. Sometimes, you may be required to have a credit score of 500-579 to make a down payment of about 10%.

Regarding FHA guidelines, as a borrower looking to purchase a single-unit approval condo, you must receive your approval through the Housing and Urban Development (HUD) automated underwriting platform.

Alternatively, you can have this approval done if you already have the maximum loan-to-value ratio (LTV) of about 90%. In this context, the LTV is a term that refers to the total amount you are borrowing versus how much equity you are likely to have in the property (home) at closing (this simply describes your down payment).

Suppose you can be approved through the Housing and Urban Development platform. In that case, you can take the Federal Housing Administration’s low down payment option just like with other qualifying properties.

You must make around a 10% down payment if you do not qualify for full automated approval. For instance, if the condominium sale price is about $100,000, you must make approximately a $10,000 down payment.

Luckily, FHA allows you to use gift funds with down payment assistance. These two financial options will help you cover a portion of the needed amount to offset the expenses of acquiring a condominium.

Step 2 - The need for FHA single unit approval

Another question you should ask yourself is, “Does your condominium need FHA single-unit approval? The answer is simple and well-explained.

If the condo you want to purchase is located within the Federal Housing Administration-approved development, you will not need single-unit approval (SUA). The single-unit approval comes in handy only where the non-FHA-approved development is applicable.

How do you know if your property has FHA approval? You must check the HUD database thoroughly to determine if the property you want to purchase has an FHA approval. Use the ZIP code when searching the HUD database for your property’s FHA approval.

On the other hand, you may use the specific condo’s project’s name while searching for the FHA approval. In this sense, your condominium complex will come up as “approved,” meaning that you are qualified for FHA financing without needing single-unit approval.

Conversely, if your condominium complex appears as “withdrawn”, “expired” or “rejected” on the HUD database, just know you need the single unit approval. The same applies when you don’t see your condominium project in the HUD database.

Step 3 - Consider an FHA-authorized lender during the application process

Even though the FHA insures FHA condominium loans, you don’t need to apply for your loan through the Federal Housing Administration.

Instead, you should consider applying for a loan with a private mortgage lender. Make sure that the private mortgage lender of your choice issues FHA-backed loans.

After you have found the right FHA-approved lender, let your loan officer know that you are seeking single-unit approval for a condominium.

The loan offer will apply for a case number in such a scenario. The officer will also follow up on your FHA’s approval process.

Step 4 - Your loan lender requests single unit approval

Following a successful application of a case number and making a follow-up of the Federal Housing Administration’s approval process on your behavior, the lender will request a single unit approval.

This process will come in handy after reviewing the required documents. Afterward, your lender will submit a Federal Housing Administration questionnaire or Form HUD 9991 to the management company or condominium’s homeowner’s association (HOA).

Once submitted to the relevant entity, a representative will complete the FHA questionnaire before passing it to your mortgage lender. The lender will take the filled-out questionnaire to the Federal Housing Administration for approval.

In this regard, the FHA will issue the final approval. Once this approval is received, your mortgage lender will proceed with the loan process.

The approval will differ slightly from the FHA Case Number acquired at the start of the loan process. The approval process, however, takes approximately three business days.

Why FHA Does Not Approve the Entire Complex

Besides offering SUA within non-approved condominium complexes, the Federal Housing Administration approves the whole condo development project.

This information should tell you that if you purchase your condo within a complex already FHA approved, you will not have to worry about FHA single-unit approval. That does not mean all condo Homeowners' associations or developers need the FHA’s approval.

Approval for a condominium development may take several months. On top of that, HOA leaders and developers will have to share financial information among themselves.

However, once the condos get approved, they will have to undergo a rigorous renewal process every three years in order to maintain their FHA approval.

Theoretically, condo complexes increase their values by acquiring and maintaining FHA approval. This leads to the opening up of financing options to more home buyers.

Today’s hot markets have seen condo buyers getting plenty of options whenever they list their units for sale, even without the Federal Housing Administration's approval.

Why FHA Treats Condominiums Differently from Single-Family Property

You might wonder why there are so many rules about financing condominiums instead of single-family homes.

These extra rules are included because your condo’s value does not depend on you entirely. Other parties help evaluate and determine the whole value of the condo you want.

For example, if the Home Owners Association grossly mismanages most of its finances, it will not be better positioned to finance major repairs on the purchased condos.

As such, gross mismanagement of finances by HOA may lower the value of condominium units. In extreme cases, poor management of finances could make condo units completely worthless.

Some condominium units do not qualify for financing because of ongoing litigation. Usually, this case arises when the litigation involves the Home Owner Association in charge and the original home builder.

Sometimes, the value falls drastically if condominium units are only available to cash buyers. Other issues come into play during the FHA's single approval of condos. Top among them is sharing common areas and amenities within the condominium developments.

For instance, most condo residents share meeting rooms, green spaces, swimming pools, nature trails, and exercise rooms with the other condo owners in a given community.

These HOA owners’ common places impact the real value of individual condominium units. So, any HOA negligence could negatively impact the value of individual condo units.

If your condominium drops in value below the actual amount of your condo’s Federal Housing Administration-insured loan, the FHA may lose its finances.

All these reasons explain why FHA treats condominiums differently from traditional single-family property.

Additional Option for Federal Housing Administration Borrowers

The best thing about the FHA loan is that it can make homeownership more affordable and accessible. This is attributed to the fact that FHA loans help lower the credit score not to mention the required down payments for borrowers.

The FHA single-unit approval significantly opens more condominium units to Federal Housing Administration loan borrowers looking for the most appropriate community to settle in.

As such, you must consider this the right time to start your pre-approval process. Your Federal Housing Administration lender will undoubtedly help you through the SUA process.

Frequently Asked Questions about FHA Single Unit Approval on Condos

How long should an FHA approval take?

According to the Federal Housing Administration, a single-unit approval process may take a period of three business days for your loan to be approved.

Sometimes, the process may take longer if the Housing Ownership Association does not provide the necessary information.

How do you get your Condo FHA approved?

As an HOA or condo developer, you may apply for Federal Housing Administration approval for your entire condo development through the FHA.

Remember that FHA-approved development enables new condo buyers to use FHA loans to finance their projects.

What are the condo qualification criteria needed for FHA loan approval?

You must be a Federal Housing Administration borrower to qualify for an FHA condominium loan. This criterion applies if you fall within the non-approved condominium complex.

Also, the condo complex should meet all the FHA requirements. Contact MakeFloridaYourHome to learn more about your requirements and loan options.

Final Thoughts

The Federal Housing Administration's single-unit approval process opens doors to homeownership for many, particularly those with limited financial means or lower credit scores.

By simplifying the purchase of single-unit condos, the FHA makes owning a home more accessible and achievable, even in non-FHA-approved complexes.

As you consider navigating this path, remember the importance of understanding the guidelines, working with authorized lenders, and evaluating the health of condo associations.

Ultimately, the FHA's single-unit approval offers a valuable opportunity for individuals to own their dream home, making it a crucial consideration for anyone looking to enter the housing market.