Units in condo hotels are prohibited. The same is true for units in time share or "segmented ownership" projects, houseboat condo developments, and projects where there are multiple dwellings inside single condominium units.
FHA will not insure units in condominiums where more than 25 percent of the total space is allotted to commercial uses, such as retail stores or offices. In fact, the agency made a point of emphasizing that it will reject loan applications from any property that it deems not "to be primarily residential" in character.
FHA also will not insure condo loans if more than 10 percent of the units are owned by investors. This is a much stricter standard than Fannie Mae's, which permits up to 49 percent of units to be investor owned.
The agency will not endorse loans from projects where less than 50 percent of the total units already have been sold, or where less than 50 percent of the units are owner-occupied or sold to buyers "who intend to occupy them."
FHA does not want to insure loans on units located in buildings with heavy concentrations of units that are FHA-financed. If more than 30 percent of the unit owners in a project took out FHA-backed loans, the agency does not want any more business in that condominium.
FHA is abandoning its current one-year mandatory waiting period before considering loan applications on condo units. This is a concession to rental apartment projects who were converted into condos and sold.
Lastly, FHA will not insure units in buildings located within a thousand feet of a major highway - it wants to avoid adverse noise pollution impacts on property values - or within three thousand feet of a dump, landfill or EPA Superfund site.
Published: June 29, 2009 Realty Times
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