FHA Condo Approval Tips: Owner-Occupancy

Andrew Fortin

When the Federal Housing Administration (FHA) is reviewing a condominium association's application for certification, there are serval criteria that can trigger an immediate rejection. In our work with clients, a common issue we see arise is the ratio of owners to renters or owner-occupancy ratios. Here are some tips to avoid this pitfall.

What are FHA requirements on condominium owner-occupancy?

FHA’s role is to back mortgages it issues, so it makes sense that they would want to evaluate data to assess the risk of the loan. One area of concern is the ratio of owner-occupants to renters.

To obtain FHA approval, an existing condominium association must have at least 50% of the units owner-occupied or sold to owners intending to occupy the unit. FHA will allow this requirement to be as low as 35% under certain conditions.

If the owner-occupancy is less than 50% but not lower than 35%, the association may still obtain FHA approval, however, FHA will require additional documentation. In such cases, FHA will require that the association show:

That reserves are funded at an annual amount equal to 20% of the budget.
No more than 10% of the units can be 60 days late in their assessment.
The association must provide three years of acceptable financial documents.

If your association owner-occupancy is below 50%, FHA approval is not out of reach, but it does require some extra documentation.

Why Associa FHA Assist?

FHA backed mortgages are an attractive form of financing, especially for condo buyers. Prior to any purchaser obtaining an FHA mortgage, the entire association must be approved by FHA. Once an application is completed, it can take up to 30 days to get FHA approval for your association. What that means is if your association waits until a unit owner has a buyer wanting to use FHA, the time frame for approval may result in a lost sale. The best way to help ensure your association is marketable to the broadest range of buyers is to get FHA approval. Approvals are good for two years. Natalie, Associa’s FHA assist lead can help! She can be reached at Nayers@associaonline.com.