FHA condo approval: project approval and single-unit approval

Two routes to FHA financing

Project approval. The association or a qualified lender gets the whole project approved. HUD's FHA Connection help pages describe two methods: the HUD Review and Approval Process and the Direct Endorsement Lender Review and Approval Process. An approved project receives a Condo ID, and buyers of units in it can use FHA loans while the approval is current.

Single-unit approval. If the project is not approved, HUD allows approval of an individual unit. This is the route that makes FHA possible in many smaller or self-managed buildings.

Checking the HUD list

HUD's FHA-approved condominium search is public. You can search by state, county, city, ZIP or project name. Each result shows a status and dates.

• Approved with a future expiration date: the project route is open.
• Expired, rejected or withdrawn: the project is not approved now, but single-unit approval may still be possible.
• Not listed: the project has never been through the process, and single-unit approval is the likely path.

Names in the list do not always match the name on the sign out front, so try the street name and city if a search comes up empty.

Single-unit approval criteria

HUD's FHA Connection guidance lists the main conditions for single-unit approval:

The project also cannot be subject to an adverse determination for significant issues that affect its viability. HUD reviews the questionnaire, and if it approves the unit, a project record is created if one does not already exist.

FHA concentration is often what stops a sale. In a 40-unit building, the 10 percent cap allows four FHA-insured units. If four owners already have FHA loans, the fifth buyer cannot use single-unit approval until one of those loans is paid off.

What the HUD-9991 questionnaire asks

The questionnaire is filled out with information from the association or its manager, and the lender certifies it. The current form asks about:

• Occupancy. How many units are owner-occupied, and whether any one person owns more than one unit.
• Construction. Whether the project is new, under construction or more than a year old, and whether it is a manufactured home project.
• Delinquency. How many units are more than 60 days past due on dues and special assessments.
• Insurance. Whether the master policy covers unit interiors and owner improvements. If not, the buyer needs an HO-6, or walls-in, policy.
• Control and finances. Whether control has passed from the developer to the owners, whether there is a reserve account kept separate from operating funds, recent financial distress, dues, special assessments and the reserve balance.
• Commercial space. How much of the project's square footage is commercial or nonresidential.
• Litigation. Whether the project or association is in pending litigation, with an explanation if so.

The full standards for each answer are in HUD Handbook 4000.1, which your lender will apply.

Timing your offer

Single-unit approval adds a review step, and some associations are slow to answer questionnaires. Practical steps:

• Ask the listing agent whether the project is FHA approved and whether recent buyers used FHA.
• Have your lender request the questionnaire answers early.
• Make sure your financing contingency gives you time to switch loans if FHA does not work.
• Budget for any questionnaire fee the association or manager charges.

The bottom line

An FHA condo loan needs an eligible project as well as an eligible borrower. Check HUD's condo search first. If the project is not approved, single-unit approval may still work, within HUD's limits on size, FHA concentration and project condition. Get the questionnaire answers before you commit to inspection and appraisal costs.