FHA to Lower Requirements for Certain Condo Developments

October 27, 2016

The U.S. Department of Housing and Urban Development released a mortgagee letter on Oct. 26 setting out requirements for when a buyer of a condominium unit can get FHA-insured financing in a development that has an owner-occupancy ratio as low as 35 percent. The 35 percent ratio was enacted into law this summer in legislation called "The Housing Opportunity Through Modernization Act," H.R. 3700.

ALTA supported this legislation as it helps homebuyers by removing lengthy and costly FHA condo requirements and increases the number of condos available in the real estate market. Members of the Title Action Network took action to encourage Congress to pass the legislation.

In addition to lowering the owner-occupancy ratio, the legislation requires a streamlined condominium certification process, provides more flexibility for mixed-use developments to receive HUD approval and requires the FHA to mirror the GSE’s rule on private transfer fee covenants.

The new requirements go into effect immediately. For existing condominium developments greater than 12 months old, FHA will lower the owner-occupancy requirement to as low as 35 percent under the following conditions:

  • Applications must be submitted for processing and review under the HUD Review and Approval Process (HRAP) option
  • Financial documents must provide for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 20 percent of the condo development's budget
  • No more than 10 percent of the total units can be in arrears (more than 60 days past due) on their condominium association fee payments
  • Three years of acceptable financial documents must be provided

For condominium projects that are proposed, under construction (including existing projects less than 12 months old) or gut rehab conversions, FHA will maintain its current owner-occupancy percentage of 30 percent.


Contact ALTA at 202-296-3671 or communications@alta.org.

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