The FHA single unit approval process ensures that a condo unit is a sound investment for the borrower and lender. Here's how it works.
Are you looking to buy a condominium and planning to finance the purchase with an FHA loan? If so, there’s good news: You’ll have a broader selection of condos than home shoppers did a few years ago.
Through the FHA single unit approval process, you may be able to buy a single-unit condo with an FHA loan even if the entire condo complex doesn’t have the FHA’s approval.
This option gives homeowners more options for where they’ll hang their hats, rather than being limited to a narrow selection of condo projects.
Importantly, condo units that receive FHA single unit approval must meet the Federal Housing Administration’s (FHA) rigorous property standards, which means homebuyers have expanded choices for safe, secure housing.
What's in this Article?
In 2019, FHA introduced the single unit approval (SUA) option. Under the new guidelines, lenders could request approval on behalf of homebuyers once again, although the requirements are more stringent.
It’s designed to provide more options to lenders in the properties they can approve for FHA loans.
Note that the SUA process is only necessary if you want to buy a condo in a project that’s not already FHA-approved. To find out whether the home you want to buy is in an already-approved condominium project, check the HUD database (HUD stands for U.S. Department of Housing and Urban Development, and it’s the agency that oversees the FHA).
Not all condo units will qualify for FHA single unit approval. If you plan to apply for SUA, it’s important to understand how the process works and that it can add complexity to your home search.
Related reading: FHA Loan Requirements 2021 | Rates & Eligibility
The FHA single unit approval guidelines are kind of “in the weeds” — meaning that the information needed probably won’t be obvious or readily available when you tour the property.
Fortunately, you’re not the one who needs to hunt these answers down. Your lender will request single unit approval on your behalf, and they’ll find out the details.
Still, it helps to know what they’ll be looking for, and you can certainly ask the head of the condo’s HOA some of these questions before you get your heart set on a particular home.
Single unit approval guidelines
- Existing construction only: SUA is not available for new construction. That includes condo projects that are built in phases, in which some sections are already built and others are new construction
- Completion: The condo complex must already have a certificate of occupancy (CO) that was issued at least one year ago
- Size: The condo project must have at least five single units
- FHA concentration, or number of existing FHA loans: No more than 10% of the complex’s units can be financed with FHA loans. In a condo project with 5-9 units, only two may be financed through FHA loans
- Owner-occupancy requirement: At least 50% of the units in the project must be occupied by their owners rather than renters
- Individual owner concentration: FHA guidelines state that the “individual owner concentration” (meaning the percentage of Units owned by a single owner of Related Party) does not exceed 10%. In a condo project with 5-20 units, the individual owner concentration does not exceed one condominium unit
- HOA delinquencies: No more than 15% of all units in the project can be 60+ days late on their condominium association dues
- Commercial space restrictions: A maximum of 35% of the building or project may be used for commercial space, such as shops and restaurants. If there are commercial entities in the project, your lender will need to verify that the commercial space and the residential space are independently sustainable and not financially reliant on each other
- Meeting other FHA requirements: The condo would have to pass the normal FHA property requirements and appraisal standards
In short, the FHA wants to know anything that could strengthen or adversely affect the condo’s value and marketability.
SUA cannot be used for manufactured homes.
Getting FHA condo single unit approval isn’t difficult, but the process requires some attention to detail, and it’s easy to get confused about which properties will qualify.
This step-by-step FHA condo single unit approval checklist can help you ask the right questions as you look for a home:
FHA single unit approval has opened up more condos to FHA borrowers. But you, as the borrower, must also qualify for the mortgage loan.
FHA borrower criteria for single unit approval condos:
- Credit score of 500 or higher
- Maximum debt-to-income ratio* (DTI) of 50% (in some cases, lenders can go higher)
- Down payment may be up to 10% for some borrowers
The minimum down payment for FHA loans is 3.5% with a credit score of 580 or higher, or 10% with a score of 500-579. However, FHA guidelines require that borrowers purchasing SUA condos either receive approval through HUD’s automated underwriting platform or have a maximum loan-to-value ratio** (LTV) of 90%.
LTV refers to how much you’re borrowing vs how much equity you will have in the home at closing (in other words, your down payment).
Borrowers who are approved through the HUD platform can likely take the FHA’s low-down payment option, as they would on any other qualifying property. But those who do not receive full automated approval will need a 10% down payment.
So, if the condo sale price is $200,000, you’ll need a $20,000 down payment. Fortunately, FHA allows borrowers to use gift funds and down payment assistance to cover part or all of that expense.
If the condo you’re buying is located within an FHA-approved development, you won’t need SUA. You’d use a single unit approval only in a non-FHA approved development.
To find out whether your property already has FHA approval, check the HUD database. You can search by ZIP code or by the condo project’s name. If your condo complex comes up as “approved,” you may qualify for FHA financing without SUA.
If your complex has a status of “withdrawn,” “rejected,” or “expired” — or if you don’t see your condo project in the database at all — you’d need single unit approval.
The Federal Housing Administration insures FHA condo loans, but you don’t apply for a loan through the FHA. Instead, you’ll apply with a private mortgage lender that issues FHA-backed loans.
Once you’ve chosen an FHA-approved lender, tell your loan officer you’re seeking SUA for a condo. The loan officer will need to apply for a case number and follow the FHA’s approval process.
After reviewing some documents, your lender can submit an FHA questionnaire (Form HUD-9991) to the condo’s homeowners association (HOA) or management company. A representative from either of these entities must fill out the questionnaire, after which your lender will submit it to the FHA.
The FHA issues final approval, which is different than the FHA Case Number obtained early in the loan process. It takes roughly three business days for final approval. Once it is received, your lender can move forward with the loan process.
In addition to offering single unit approvals within non-approved complexes, the FHA also still approves entire condo developments. If you’re buying within a complex that already has the FHA’s approval, you won’t need FHA single unit approval.
But not all condo developers or homeowners associations want the FHA’s approval. Some who do want FHA condo approval never get around to applying.
Getting approval for a development could take months, and the developers or HOA leaders would have to share lots of financial information.
And once they get approved, condos have to undergo a renewal process every three years to keep FHA approval.
In theory, condo complexes can increase their property values by getting FHA approval, which opens up financing options to more buyers. But in today’s hot markets, condo sellers tend to have plenty of options when they list their unit for sale even without FHA approval.
Why all these extra rules about financing condos? Because the value of your condo does not just depend on you.
For instance, if the HOA grossly mismanaged its finances, it won’t have enough to complete major repairs later on. That could devalue the condo units or, in extreme cases, make units completely worthless.
Most condo units are not eligible for financing if there’s ongoing litigation between the HOA and, say, the original builder. Value falls if condo units are only available to cash buyers.
Finally, common areas within condo developments can become an issue.
Condo residents share green spaces, meeting rooms, nature trails, swimming pools, exercise rooms, and the like with other condo owners in the community.
Yet these HOA-owned common areas impact the value of your individual condo unit. If the HOA let the place fall apart — that is, if the pool turned murky and the trail got so overgrown no one could use it — the value of your individual condo would likely go down.
And if your condo’s value fell below the amount of your condo’s FHA-insured loan, the FHA could lose money.
FHA single unit approval FAQs
According to the FHA, the single unit approval process can add up to three business days to your loan application process. But it could take longer if the HOA does not supply necessary information quickly.
Condo developers or HOAs can apply for FHA approval for the entire condo development through the FHA itself. FHA-approved developments allow condo buyers to finance with FHA loans.
To buy a condo within a development that’s not FHA approved, condo buyers can apply for single-unit approval through a private mortgage lender.
To get an FHA condo loan within a non-approved condo complex, you’ll first need to be an FHA-approved borrower. Then, the complex itself must meet the FHA’s requirements.
The requirements for FHA Project Level Approvals differ based on project types. It’s important to reach out to your Loan Originator to discuss your options and requirements in more detail, if you have a property in mind.
For almost 90 years, FHA loans have been lowering barriers to homeownership. But occasionally, buyers come across FHA loan stigmas — misconceptions that sellers or HOAs may believe.
In many cases, however, condo developers and HOAs simply haven’t taken the time to obtain FHA approval, which can be a complex and time-consuming process.
FHA loans make homeownership more accessible by lowering credit score and down payment requirements for borrowers.
And FHA single unit approval has opened up more condos to FHA loan borrowers looking for the right community to call home.
Start the preapproval** process with an FHA lender who can help you through the single unit approval process.
*Debt-to-income (DTI) ratio is monthly debt/expenses divided by gross monthly income.
**Loan-to-Value (LTVs) and Combined Loan-to-Value (CLTVs) may vary by loan amount.
***Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.
Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA, and were not approved by a government agency.