FHA loans are great for first-time homebuyers because they have lower credit and down payment requirements.
However, the entire condominium complex needs to be FHA-approved, greatly restricting where borrowers could buy. However, that is no longer the case, condominiums no longer have to be approved to be eligible for an FHA loan.
In this article, we’re going to go over the new rules on FHA approved condos.
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New FHA Rules on Condos
The new rule is a major victory for homebuyers looking to purchase a condo. In the past, only FHA-approved condos could be purchased using an FHA loan. The problem with this is that not many condos are actually FHA-approved. For instance, over 350,000 condominium complexes are in the country, and less than 35% are FHA-approved.
Highlights of the New Condo Rules
- “Single-unit approval process” allows for a single unit to be eligible for an FHA loan even if the complex is not approved.
- Approved condominium projects will have recertification extended from 2 to 3 years.
- More mixed-use condo project will be eligible for FHA insurance.
- Condominium projects with 10+ units, of which 10% are individual units, can be FHA-insured; projects with less than 10 units may have no more than two FHA-insured units.
- Approved condo projects will require that at least 50% of the units are occupied.
Visit the HUD website to read about the new condo approval guidelines.
Will Increase Homeownership Immediately
By removing these restrictions, we will see a spike in the number of FHA mortgage loans. The previous guidelines of every condo project needing to be FHA-approved really limited the number of loan options borrowers have throughout the Country.
Homeownership will rise for all Americans. First-time homebuyers, low-income families, seniors, and minorities will benefit the most.
Conventional loans often require at least a 640 credit score and a large downpayment, as much as 20% in some cases. However, FHA loans, on the other hand, require just a 3.5% credit score and a low 3.5% down payment. First-time homebuyers may qualify for assistance.
How to Get an FHA Loan
FHA loans have many advantages over conventional mortgages, such as lower credit and down payment requirements. In fact, borrowers with a credit score as low as 500 may be approved with a 10% down payment. You also must be able to afford the payments, a debt-to-income ratio below 43% is ideal, but a higher DTI ratio can be approved in some cases.
2020 FHA Loan Requirements
• 580 credit score with 3.5% down
• 500-579 score with 10% down
• Maximum 50% debt-to-income ratio
• Two years of stable employment and income history
• For primary residence only
• 24 month waiting period after a foreclosure or bankruptcy
• 1% of student loan debt added to DTI ratio