FHA Mortgage Loan Program For Condominium Units

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This program insures the loan for a person who purchases a unit in a condominium building.

One of the many purposes of FHA's mortgage insurance programs is to encourage lenders to make affordable mortgage credit available for non-conventional forms of ownership. Condominium ownership, one particularly popular alternative in which the separate owners of the individual units jointly own the development's common facilities and areas. Insurance for condominiums, such as is provided through Section 234(c), can be important for moderate and low income renters who wish to avoid being displaced by the conversion of their apartment building into a condominium.


The program insures a loan for as many as thirty years to purchase a unit in a condominium building--which can be semi detached or detached, a walk-up, a row house, or an elevator structure, but must contain at least four dwelling units. The loan is made by a lending institution, such as a bank, mortgage company or savings and loan association, and is insured by HUD's Federal Housing Administration (FHA). Most of the features of Section 234(c) mortgage insurance are the same as those governing HUD's basic FHA mortgage insurance program, Mortgage Insurance for One to Four-Family Homes (Section 203(b)). For example, because FHA insurance allows home buyers to finance about ninety-seven percent of the home's cost through their mortgage, down payment requirements can be as low as three percent or less. In addition, some closing costs can be financed, reducing up-front costs. And FHA limits some fees that lenders charge-for example, the loan origination charge. Finally, FHA sets limits on the size of the mortgage loan that vary with the number of units being purchased and location.

However, Section 234(c) does have some unique, additional restrictions. If the apartment is in a building that was converted from rental housing, no insurance may be provided under Section 234(c) unless: (1) the potential co-buyer or buyer was a tenant of that rental housing; (2) the conversion occurred more than one year before the application for insurance; or (3) the conversion of the property is sponsored by a tenant's organization that represents a majority of the households in the project. Eighty percent of FHA-insured mortgages in the project must be made to owner-occupants.

Developers may obtain FHA-insured mortgages to finance the rehabilitation or construction of housing projects that they intend to sell as individual condominium units under HUD's Section 234(d) program.

Any credit worthy potential owner-occupant who will make the condominium unit their principal residence and who meets FHA underwriting criteria is eligible for a mortgage insured under this program.

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