FHA New Condominium Approval Rule

Condominiums have increasingly become a source of affordable, sustainable homeownership and for many families, it’s critical that the Federal Housing Administration (FHA) be there to help them. Although there are currently more than 50,000 condominium projects in the U.S., only 6.5% are approved to participate in FHA’s mortgage insurance programs. In an effort to provide additional affordable homeownership opportunities, especially among credit-worthy first-time buyers, the FHA has established a new condominium approval process. It is estimated that 20,000 to 60,000 condominium units could become eligible for FHA-insured financing annually under the new policy.

The rule provides requirements for lenders to obtain approval under the Direct Endorsement Lender Review and Approval Process (DELRAP) authority for condominiums, and standards that projects must meet to be approved for mortgage insurance on individual units. The new rule and the new Condominium Project Approval section of the Single Family Housing Policy Handbook provide a comprehensive revision to FHA condominium project approval policy which is designed to be flexible and responsive to market conditions. In particular, the final rule provides certain individual condominium units the ability to obtain FHA mortgage insurance even in condominium projects that are not FHA approved. These polices became effective on October 15, 2019.

FHA’s new condominium policy is part of a broader Administration objective to reduce regulatory barriers that currently restrict affordable homeownership opportunities. In general, the FHA’s new rule:

• Introduces a new single-unit approval process to make it easier for individual condominium units to be eligible for FHA-insured financing. This enables small lenders business opportunities without the cost of seeking approval for the entire condominium project.
• Extends the recertification requirement for approved condominium projects from two to three years. The change to 3 years will decrease submission burdens on lenders and review burdens on HUD.
• Allows more mixed-use projects to be eligible for FHA insurance. HUD notes that Fannie Mae recently increased its allowable commercial space percentage to 35 percent. This increased commercial space is expected to meet the demand for residential units in mixed-use projects within and outside urban settings.

Single-Unit Approvals

Individual units may be eligible for Single-Unit Approval if:

• The individual condominium unit is in a completed project that is not approved;
• No more than 10% of individual condominium units are FHA-insured in properties with ten (10) or more units, or;
• No more than two (2) FHA-insured units in properties with fewer than 10 units.

Minimum Owner-Occupancy Requirements

Approved condominium projects must have a minimum 50% of the units occupied by owners for most projects. However, if certain, specific indicators are met – indicating a lower risk, the requirement could be as low as 35%. This removes the previous burdensome policy that requires properties to demonstrate reserves at 20% or higher to allow for reduced owner-occupancy.

FHA Insurance Concentration in Condominium Projects

FHA will only insure up to 50% of the total number of units in an approved condominium project.

Commercial/Nonresidential Space Limits

FHA will require that the commercial/non-residential space within an approved condominium project not exceed 35% of the project’s total floor area and will allow exceptions up to 49%.

1.) The final rule itself can be found at  and the new policies have been highlighted in the Single Family Handbook, 4000.1 https://www.hud.gov/sites/dfiles/OCHCO/documents/4000.1hsgh.pdf

2.) https://www.fanniemae.com/content/guide/selling/b4/2.1/03.html