Due to many, many new regulations in the industry , FHA has recently become one of the only ways to purchase a condo with less than a 5% down payment. This has been particularly frustrating for my Chicagoland area with such a booming condo market.  

FHA loans for the past decade on average have funded roughly 5% of total real estate transactions. Many projections for 2009 suggest that FHA will finance one in three mortgages. FHA only requires a 3% down payment, which can even be covered by use of down payment assistance, resulting in a no down payment loan. 

In the past, buyers have gotten away around the tricky stuff surrounding FHA financing on a condo by using another Alt-A or subprime product for financing. Those options no longer exist, so I went to work to find out how we might be able to successfully finance low down payment financing for our condo buyers.  

There are two rules regarding FHA financing on condos... 

1) The project must have a full approval for FHA financing in the development (this is the easy way)

**here's the link to check and see if a project is approved  

 https://entp.hud.gov/idapp/html/condlook.cfm 

2) If the condo project is not FHA approved you can get a "spot approval" to close your FHA loan in the development. That development must meet certain criteria. Here is a checklist of the main criteria it must meet (for a full checklist let me know)... 

-The developement does NOT have the right of first refusal

-No special assessments or legal action currently pending against the development

-Common areas of the development must be under control of the homeowners association for at least one year

-Condo project must be at least 90% sold, with at least 50% owner occupied unit owners

The first question regarding "right of first refusal" is the reason most agents (if they have tried) have given up on condo spot approvals for FHA financing. Essentially, the right of first refusal gives the current unit owners the right to refuse a potential buyer of a unit in the development from purchasing the property. FHA will not allow for the unit owners to have the right of first refusal.  

What I have learned is that you will almost never be successful with getting a spot approval to get FHA financing in a small condo development (unless it is already on the approved list). Unit owners for small developments typically like to have more control, so the attorneys always typically set them up with the right of first refusal at the associations inception.  

The only way to get around a development having the right of first refusal would be to have the condo development attorney draw up an amendment to the condo decs and by laws removing the right of first refusal. I have never had success with this because condo owners don't want to pay the fee to the attorney to draw up this amendment. 

It is the large developments that I am having a very high success rate with. Most do not have the right of first refusal because there are too many unit owners to realistically enforce this owners right (and still get units sold and bought efficiently).  

As long as the property is not new construction and the unit owners do not have the right of first refusal, it is fairly easy to get FHA financing on a condo in most large developments. I've already become an expert!