What Types of Condominium Projects are Approvable by FHA?

What Types of Condominium Projects are Approvable by FHA?

This is one of the most commonly-asked question that we receive.  The better question to answer is Which types of condominiums are NOT approvable by FHA?   Then we can deduce that all other types of condominiums are eligible for FHA condominium project approval.

These projects are ineligible for FHA condominium project approval:

• Projects where more than 25% of the total floor area is non-residential.  That is the basic guideline although there may be exceptions granted that will allow up to 50% in certain circumstances.

• Timeshares and Condohotels (Condotels).  Segmented unit ownership or condominiums that also operate as a hotel.  Condominiums cannot offer hotel-type services such as a front desk, room service or maid/cleaning service or offer leases or rentals for less than 30 days (aka “transient leasing”).

• Multi-dwelling unit condominiums are fairly rare but this means that the condo units are multi-family dwellings and the project consists of a grouping of these whether they are attached or detached.  These are not allowed.

• Mandatory rental pooling of the units is not allowed.

• Condominiums converted from hotels or motels.

• Mandatory membership to a country club or the like.  Condominiums can be required to be a part of a Master Association but it cannot require unit owners to be members of any type of club, such as a golf or racket club.

• Houseboat condominiums is not something that we have seen but there must be enough of them out there - somewhere - for FHA to mention them on this list.

• Projects in designated coastal barriers according to FEMA such as sections of the Atlantic Coast, Great Lakes and Gulf of Mexico.

• “Cloud Condominiums and Co-Housing communities: “Cloud” condominiums are not eligible for FHA approval.  Co-housing communities may be eligible if they meet FHA guidelines for approval.

• Occupancy restrictions which is an entire topic by itself.  Basically, a third party, such as an HOA, cannot prevent or restrict the leasing or sale of a unit except under certain circumstances nor can the HOA screen a potential buyer or lessee (except the Registered Sex Offenders list).  A right of first refusal is acceptable provided that it is written in the proper manner.

• Projects that outright restrict leasing.  A project has to allow leasing of at least one unit.  Exceptions include age-restricted communities and projects that consist entirely of Affordable Housing units or the like.

• Conveyance/deed restrictions that require 3rd party transfer fees which are not administrative in nature or benefit the association directly.  For example, a transfer fee of $300 paid to the HOA for providing resale packages is acceptable as is one which contributes to the association’s reserve account.  Unacceptable transfer fees include those tied to a percentage of the sales price or those paid to a “nonprofit organization” for any reason.

The above list represents the major categories of condominiums that are not eligible for FHA project approval.  Most of them are also not eligible for Fannie Mae (conventional) financing options.  Age-restricted and Affordable Housing communities may be eligible for FHA project approval if they meet other FHA criteria for approval.

Top Photo Credit: Freedigitalphotos.net / stuartmiles Houseboat Photo Credit: Freedigitalphotos.net / arvind balaraman