Woman checking high-rise condo | Joe Raedle/Getty Images

If you want to buy a condominium with an FHA-insured mortgage, be aware that the path isn’t as smooth as it could be.

Before you can buy a condo unit with an FHA loan, the entire condominium project has to be certified by the Federal Housing Administration.

The certification requirement means that “the pool of available properties is a lot smaller,” says Natalie Stewart, president of FHA Review, a 3rd-party agency that specializes in FHA condo certification. She calls it “a tricky process.”

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Why it matters

FHA-insured mortgages allow for down payments as low as 3.5%. People with imperfect credit are more likely to qualify for FHA loans than for conventional mortgages.

Many condo buyers are first-time homeowners — and first-time buyers often have small down payments, making them prime candidates for FHA loans.

FHA makes it easier

The FHA made changes in November 2015 to make condo certification less onerous:

  • The housing agency is faster to recertify condo projects whose certifications expired.
  • It has expanded the types of insurance acceptable for condo associations’ master coverage.
  • The definition of “owner-occupancy” has been expanded to make more units eligible for FHA loans. This will help make more condo projects meet FHA’s minimum owner-occupancy requirements of 50%.

These changes could open up a larger pool of condos that are eligible for FHA loans and “will benefit everyone involved,” says Tim Pascarella, senior loan officer with Ross Mortgage Corp. in Royal Oak, Michigan.

“I’ve always told buyers and associations that in today’s world, almost half of the preapprovals out there are FHA,” Pascarella says. “So if you are not willing to get your condo FHA-approved, you are literally telling that many people that they don’t need to come and look at your condo. “

At the same time, the FHA has to mitigate its risk. “They have to make sure that these associations are financially stable and properly managed so that the viability of the loan is uncompromised. So it’s a push-pull,” Stewart says.

Locating an FHA-approved project

If you’re interested in a condo, check out HUD’s condo lookup table to find out whether the project is approved for FHA loans, recommends Todd Householder, senior vice president of secondary marketing for Huntington Bank in Columbus, Ohio.

If you want a condo in a project that’s not FHA-certified, you can ask the management company or board of directors to seek certification. If all paperwork is in order, the process takes 2 to 8 weeks, depending on region.

Even if you find an FHA-approved project, don’t rule out other options. With a large down payment and good credit, you might be better off going with a conventional loan. An FHA loan you are bound to an insurance payment for the life of the loan.

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