FHA Condos - Do They Really Exist?

With all the media coverage on the historically low interst rates and lower home prices, it is no wonder that there are many first time home buyers looking to make a purchase.  A FHA loan is often the way to go for these buyers since the down payment can be as little as 3.5%.  For many, this can be a double edged sword.  I have numerous buyers right now who qualify for $150,000 using a FHA loan.  They are interested in buying their first condo and are very excited and ready to go.  They quickly realize that it is not going to be as easy as they thought.  See when using a FHA loan there are some special criteria that must be met in order to qualify for the loan.  Not only do the individuals need to qualify in terms of income, debt and credit but the condo unit and condo complex also need to qualify.

The condo unit has to be habitable.  The condo systems such as electricity, plumbing and heat all need to be in good working order.  There needs to be flooring, no peeling paint or holes, and a working stove.  With a $150,000 purchase price limit, in San Diego this is the very bottom of the home price range.  Many of the condos are in very rough condition and will not meet the FHA requirements.  Let's say we do find one in decent condition, that is only the first hurdle.  Now we need to take a look at the complex.  The complex needs to have minimum of 51% owner occupied units.  As more investors snap up the units that are in rough shape and rent them out the lower this percentage becomes.  Leaving fewer and fewer complexes that meet this requirement.  The third hurdle is that in order to go FHA the complex must not have a high delinquency rate of the HOA fees.  With so many homeowners losing their condo many times the HOA fees are not paid for months at a time and if the property is a short sale many banks will NOT agree to pay the back HOA fees.  The HOAs need to be in good shape in order for FHA to be possible.  The complexes that have the higher owner occupied percentages and lower delinquency rates tend to be the more expensive complexes, which are out of the buyer's budget.  I tell you this to keep you informed so that you go into your home search with your eyes wide open.  For example in zip code 92019 there are only 11 complexes on the FHA approval list and most do not have condos listed for under $150,000. 

So where does that leave you?  It is not impossible to find a FHA condo for under $150,000 but you need to understand that not every condo you see on a listing website will work for you.  You will need to have patience and understand the rules you are playing by.  This will allow you to make informed decisions and be less likely to be disappointed when you find a condo you love but doesn't qualify for FHA.  You will understand that there is stiff competition for properties of this type and be able to write competitive offers when you do find one that suits your needs.  So go into the house hunt with knowledge and understanding.  Understand what you are up against and don't give up.  Keep looking and pushing and you will find what you need but give yourself plenty of time to do it.