How to Find Out if a Property is FHA Approved?

Between a down payment, closing costs, and regular monthly mortgage payments, buying a home is expensive.

With current home loan interest rates over 7%, the monthly mortgage payment on a $500,000 home is over $3,300 (and that doesn’t include any other expenses like insurance or property taxes). For many, purchasing your first home isn’t just costly but a pipe dream without help.

Fortunately, programs such as FHA loans help make buying real estate more accessible. 

An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a government agency. FHA loans help low- to moderate-income borrowers qualify for a mortgage by lowering the qualification standards. Homebuyers can qualify with a lower 

The FHA makes it easier to qualify for a home loan by:

• Accepting a lower credit score of 580 or more. 
• Requiring a lower down payment than conventional loans, often as low as 3.5% of the purchase price
• Allowing for higher debt-to-income ratios, meaning borrowers can have higher debt levels and still qualify for the loan.

While there are no borrower income limits to qualify for an FHA loan, there are limits on how much you can borrow and the type of property you can buy. 

FHA Approval Requirements for Properties

You can’t just buy any property with an FHA loan. The FHA has strict guidelines on what kind of properties qualify for these loan products and a minimum standard condition the property must meet. 

FHA Minimum Property Standards

The Federal Housing Administration (FHA) sets minimum property standards to ensure that the homes financed through its programs are safe, sound, and secure (similar to a VA loan).

These standards are overly prohibitive but are designed to protect both the lender and the borrower by ensuring that the purchased property is in good condition. Typically, buyers using an FHA loan are not “cash rich,” so the FHA’s guidelines ensure they are not purchasing a property that needs significant work to make it habitable. 

To meet the FHA’s minimum property standards, it must: 

• Provide a safe living environment. This includes proper access to the property, adequate lighting, and functioning smoke detectors. The home should not pose any health or safety hazards.
• Offer adequate protection against unauthorized entry. This includes secure doors and windows.
• Be structurally sound. This means the foundation, roof, walls, and other structural components must be in good condition and free from significant defects.
• Have working utilities (water, electricity, gas, etc.) and functional mechanical systems (heating, cooling, plumbing, and electrical). These systems should be in good working order and meet local building codes.
• Provide adequate living space for its intended use. This includes having a functional kitchen, bathroom facilities, and enough bedrooms and living areas to accommodate the occupants.
• Have adequate sewage disposal and be free from environmental hazards such as lead-based paint, asbestos, or mold.
• Be well-maintained, with no significant deferred maintenance issues. This includes ensuring that the home’s exterior and interior are in good repair.

What Types of Properties Can You Guy with an FHA Loan?

FHA loans are not restricted to single-family units – the loans are supposed to improve access to homeownership. 

Here are the types of properties you can buy with an FHA loan:

• Single-Family Homes: This is the most common type of property purchased with an FHA loan. 
• Residential Multi-Family Homes: FHA loans can be used to buy multi-family properties with no more than four units. Properties with five or more units to not qualify.
• Condominiums: You can buy a condo with an FHA loan, but the condominium project must be FHA-approved. 
• Townhouses: Like condos, townhouses can be purchased with an FHA loan if the project is FHA-approved.
• Manufactured Homes: FHA loans can be used to purchase manufactured homes, provided the home is on a permanent foundation and meets specific FHA standards.
• Planned Unit Developments (PUDs): These are communities of single-family homes or townhomes with shared amenities (like pools, clubhouses, dog parks, etc.). PUDs must be FHA-approved.
• Mixed-Use Properties: FHA loans can be used to purchase mixed-use properties, provided the residential portion of the property meets FHA standards and the commercial use does not exceed a certain percentage of the total property area.
• HUD Homes: HUD homes are owned by the U.S. Department of Housing and Urban Development (HUD). They are often sold at a discount and can be purchased using FHA financing.

Checking FHA Approval for Condominiums

To use an FHA loan to buy a condo, the condominium project should be on the list of the FHA’s approved developments. 

FHA Approved Condo Requirements

Lenders want to minimize their risk when approving loans. By ensuring that a condo development meets specific standards, they reduce the likelihood of loan defaults. Lenders must ensure that the condominium project is in good condition and well-managed.

This includes verifying that the homeowners’ association (HOA) is financially stable and that the property is maintained properly.

For a condominium development to qualify for FHA loans, it must meet the following criteria: 

• The condo development must be fully built and ready to live in.
• The condo association (or HOA) must have insurance coverage equal to 100% of the replacement cost.
• At least 50% of the units must be owner-occupied.
• No more than 35% of the space occupied by units can be commercial.
• At least 10% of the budget must be in cash reserves.
• At least 85% of owners must be current on their dues.
• No more than 50% of the units can be FHA-insured.
• A condo association must re-apply for FHA approval every three years, so it is not uncommon to find that a unit was once an FHA-approved condo but that its standing is now expired.

How to Check if a Condo is FHA Approved

While navigating the HUD website can be challenging, they make it easy to determine if a condo is approved for FHA financing.

To find FHA-approved condos, follow these steps: 

• Navigate to the HUD website. 
• Click the ‘Resources’ tab in the top menu. 
• Select ‘HUD Approved Condominium Projects.’
• Now, you will be presented with a page to enter the specific property details or condo ID of a development of interest. Alternatively, you can search by state, county, city, or zip code to find eligible condo projects in your area. 

The easiest way to determine if a property is an FHA-approved condo is to search by the Condo ID, which can usually be obtained from the seller’s agent. 

The Condo I am Interested in Isn’t FHA Approved – Can it Get FHA Approval?

For a condominium project to become FHA-approved, it must ungergo a detailed approval process to ensure it meets the FHA’s strict criteria. This process involves multiple steps designed to assess the financial health and overall condition of the condo project.

Getting on the FHA condo approval list isn’t in a buyer’s or seller’s hands. The condominium association or a representative must submit an application to the FHA for approval. The FHA reviews the submitted documentation to ensure the condo project meets its guidelines. This includes verifying that the project is fully built and ready for occupancy and that the HOA has sufficient insurance coverage.

On average, the approval process can take between 8 to 12 weeks from the initial submission to the final decision. However, this timeline can vary based on the project’s specific circumstances and the application process’s efficiency.

If you are considering purchasing a condo that is not on the FHA condo approval list (and has never been approved), it’s best to either look into alternative financing options or look for another property to purchase. Most condo associations will be unlikely to commit to the work, time, and cost of the FHA loan approval process for one sale. 

FHA Approval for Single-Family Homes

Unlike condominiums, single-family homes need not be on a specific FHA approval list. However, they must meet certain appraisal and inspection criteria set by the FHA to qualify for financing. The criteria that need to be met are the minimum property standards mentioned above.

Because a single-family home (not in a PUD development) doesn’t have an associated HOA and its value isn’t directly reliant on other properties, it’s much easier to qualify for an FHA loan.

When you use an FHA loan to purchase a single-family home, the property must undergo an appraisal by an FHA-approved appraiser. This appraisal is not just about determining the home’s market value; it also involves a thorough inspection to ensure the property meets the FHA’s minimum property standards.

Can You Sell Non-FHA Approved Condos to FHA-Backed Buyers?

Selling a non-FHA-approved condominium to an FHA-backed buyer is generally not feasible due to the stringent requirements set by the Federal Housing Administration (FHA). Real estate agents with FHA-backed buyers need to be considerate about the properties they show their buyers. To provide the best service, they should check if a condo association has FHA approval before presenting it to the buyer or scheduling a showing. 

Sometimes, a buyer will overlook that a unit is not an FHA-approved condo and instead seek alternative financing. Buyers can seek conventional loans or other types of mortgages that do not require the same level of project approval.

However, this often means higher down payment requirements and stricter credit score criteria than FHA loans. For many, that isn’t an option, and not having information about the condo’s status upfront can result in disappointment. 

While there is the option for the condo development to get FHA approved, it is a lengthy and costly process for the homeowners association. This involves submitting an application and meeting the FHA’s criteria for approval.

While this process can take several weeks to a few months, it can open up the project to a broader range of potential buyers who rely on FHA financing. However, most HOAs will hesitate to go through the process due to the administrative demands and inspection costs. 

Streamlining Your Home Buying Process with FHA Loans

FHA loans make homeownership more accessible by allowing lower credit scores, smaller down payments, and higher debt-to-income ratios. One of the best features of an FHA loan is that it’s open to several property types, including single-family homes, condos, townhomes, and residential properties. 

However, not all properties qualify for FHA loans, which can be frustrating for FHA-backed buyers. Single-family homes must meet specific appraisal and inspection criteria, while condos or properties in an HOA require FHA project approval.

FHA project approval can be frustrating for buyers and their agents, as it potentially limits the property they can purchase. Selling non-FHA-approved condos to FHA-backed buyers is challenging. Real estate agents should verify that a unit is an FHA-approved condo before presenting properties to FHA-backed buyers to avoid heartache.

Homebuyers looking to buy a home with an FHA loan should start the homebuying process by finding a real estate agent who is experienced in the FHA process. If you’re buying a single-family home, they will be able to guide you through the approval process. However, if you want to buy into a condo community, an experienced agent will be your best support in finding condo buildings that are already FHA loan-approved.

Ready to start your home-buying journey? Connect with top real estate agents through FastExpert to find the best properties that meet FHA approval criteria and get expert guidance every step of the way.