The FHA Condo Approval Requirements

FHA Condo Approval Checklist

Lets Review Them



  • Ownership: No more than 50% of units can be investor-owned or used for rentals. (Exception: 35% owner occupancy allowed with specific criteria)

  • Commercial Space: No more than 50% of the property can be used for commercial purposes.

  • Delinquent Dues: No more than 15% of units can be delinquent in their HOA assessments for over 60 days.

  • Single Investor Ownership: For properties with over 20 units, no single investor, entity, or related party may own more than 10% of the units. For properties with 20 units or fewer, no individual owner, entity, or related party may own more than one unit.

  • FHA Loan Concentration: No more than 50% concentration of FHA Loans within the community.

Reserve Requirements

  • Reserve Funding: At least 10% of all budgeted income must be allocated to a reserve account.

  • Adequate Reserve Funds: Funds should cover insurance deductibles and capital repairs/replacements for the next 2 years (as per a recent reserve study).

  • Budget Allocation: Allocate 10% of the total budget towards reserves.

Insurance Requirements

  • Master or Blanket Insurance: Coverage must be 100% of the condominium’s replacement cost (excluding foundation or land).

  • General Liability Insurance: Covers all common elements and public ways.

  • Fidelity Bond: Required for communities with 20+ units, covering the Board of Directors and Employees handling association funds (equal to 3 months aggregate assessments of all units + Reserves).

  • Flood Insurance: Mandatory if located within a 100-year floodplain, with coverage at 100% of replacement cost issued by NFIP.

Leasing Restrictions

Acceptable Leasing:

  • Silent: No leasing restrictions in governing documents.

  • Leasing Caps: Limited rentals permitted, with possible Board review.

  • Written Leases: All leases must be in writing.

  • Tenant Information: Provide tenant information, including names and addresses.

  • Legal Conformance: Leases must adhere to the legal governing documents.

  • Lease Periods: Set minimum and/or maximum lease periods (minimum 30 days or “no transient rentals” option).

Sometimes Acceptable:

  • Assignment of Rents: Rental income assigned to the association if the owner is delinquent in assessments.

  • Corporate Leasing Restrictions: Leases must use a community-specific form.

Non-Acceptable Leasing Restrictions:

  • Mandatory Board Meetings: Except for orientation to the community.

  • Registered Sex Offenders List Checks: Cannot be required of unit owners.

  • Community Leasing Ban: Must allow at least one unit to be leased at any given time.

  • Seasoning Clause: Unit owners must not be required to own the condo for a specific time before leasing.

  • HOA Lease Approval: Must be clear and recorded in a legal instrument if used for monitoring rentals.

  • Hotel-like Services: Cannot provide services typically associated with hotels.

  • Lease Voiding Power: The HOA should not have the power to void leases.

  • Credit References or Background Checks: These are not required by the HOA.

Required Documents for FHA Condo Approval

Several documents are needed for FHA Condo Approval, available through the Board of Directors or Management Company. Private Association documents are only accessible from the Board or Management Company.

Special Cases

FHA Condo Approval Guidelines for 2-4 unit condo complexes:

  • Alternative guidelines available for complexes without shared expenses or financial reports, known as a “Memorandum of Understanding” (MOU).

  • The MOU outlines maintenance responsibilities and must be signed and recorded with the County by an in-state attorney, costing $200 to $500.

  • With the MOU, financial reports and reserve requirements are waived.

FHA Condo Approval Guidelines for New Construction:

  • Special guidelines apply to projects under construction, recently converted, or less than 12 months old.

  • Developers must pre-sell or have contracts for at least 30% of Phase 1 units.

  • Additional documentation, including environmental reports, site photographs, and permits, is required.