FHA Condo Approvals – Clarification of “Site Condominiums”
Prior to the release Mortgagee Letter ML11-22, HUD had exempted so-called “Site Condominiums” from the requirement to become approved in order for FHA financing to be allowed within the project. ML11-22 clarified what a Site Condominium is in order for it to not be required to obtain HUD’s approval.
Site Condominiums are condominium projects that meet ALL of the following requirements:
- Units are encumbered by a condominium declaration/covenant or condominium form of ownership.
- Units are single-family and completely detached from each other. This includes garages, archways, breezeways/porches/decks or any other attached buildings.
- A condominium unit consists of the entire structure, site and air space and no part of the structure is considered to be common areas or limited common areas (see Note below).
- Insurance and maintenance costs fall solely on the unit owner.
- Any common assessments collected are for amenities that are outside of the footprint of the individual units (see Note below).
Any condominium projects that do not meet all five of the above requirements are not considered to be Site Condominiums by HUD and will required full project approval to be eligible for FHA loans.
In addition, Manufactured Housing Condominium Projects may not be treated as Site Condominiums and will require full project approval even if the projects meet all of the above-mentioned requirements.
Projects consisting of Modular Homes which are processed as single-family homes for insurance purposes may be treated as Site Condominiums so long as they meet the requirements as mentioned above.
Note: Typically, in condominium projects, pieces of the structure, such as the front steps, are considered common areas or limited common areas which are maintained by the Homeowner’s Association (HOA) and not the unit owner. Here, HUD is requiring that no part of the individual unit, which it clarifies as anything attached to the structure and residing in the structure’s footprint, be maintained by the HOA. This even includes garages that are detached from the dwellings.
Previously, a Site Condominium was defined as “single family totally detached dwellings (no shared garages or other attached buildings) encumbered by a declaration of condominium covenant or condominium form of ownership.”
With this new clarification, fewer projects will meet the definition of a Site Condominium and will require full project approval to make FHA financing available within the project.