Weaving through the myriad of guidelines along the road to an FHA loan for a condominium, you run into a roadblock that says the entire condo project must be FHA approved. You could ask the homeowners association to apply for FHA approval and change their bylaws, but if there is little or no chance of them making the effort, then you could try an FHA spot loan.
FHA created the spot loan provision specifically for such an occasion. Of course, there are still many guidelines that determine if a condominium project will qualify for an FHA spot loan:
- The homeowners association cannot have a right of first refusal restriction on sales.
- Condominiums must provide undivided ownership of common areas by unit owners.
- The condominium project cannot be subject to additional phasing or annexation.
- No special assessments or legal action can be pending against the association.
- Common areas must be under the condo association’s control for at least one year.
- At least 90 percent of the total units in the condo project have to be sold.
- At least 51 percent of the total units in the project must be owner-occupied.
- No adverse environmental factors affecting the project or units are allowed.
- No single entity can own more than 10 percent of the total units in the condo project.
- The units must be owned in fee simple or held under a lease hold acceptable to FHA.
- For projects over 30 units, no more than 10 percent of the units can have FHA loans, and for projects of 30 units or less, no more than 20 percent of the units can have FHA loans.
The FHA spot loan program is designed to provide you with an opportunity to purchase a unit in a non-approved condominium project where FHA involvement is limited. It’s not to be used to try and circumvent the general requirement that a condominium project be approved before a mortgage on a unit can be insured for an FHA loan.
You are not expected to research all the items listed above for compliance. It’s the job of an FHA approved lender to make sure all the program requirements are satisfied to fund a spot loan.