It's not easy being a condominium owner. Not only are sales down, but FHA restrictions on mortgages for condos will make it harder for homeowners to sell or refinance.

Condominiums have always offered the advantages of homeownership without all the headaches. Unlike the owner of a house, who's responsible for every crack, breakdown, flood, or plumbing catastrophe, condo owners share the financial burden with their neighbors. Now, however, since the FHA has tightened restrictions for mortgages, condo owners may experience more challenges when it comes time to sell or refinance.

A new set of restrictions

The new rules for condo owners were implemented on November 9, 2009. But many condominiums still aren't aware of them, or don't fully understand the implications of them.

In order to qualify for FHA financing, condos must meet the following requirements for approval by the U.S. Department of Housing and Urban Development (HUD):

  • No one person or entity can own more than 10 percent of the units
  • Homeowner's Association (HOA) must have adequate hazard, liability, and flood insurance
  • No more than 50 percent of units can have financing with FHA loans
  • Minimum 50 percent of units must be occupied by owners
  • No more than 15 percent of unit owners can be delinquent on their association dues


The above restrictions are pretty straightforward. But these aren't the ones that are giving condos headaches. It's the financial requirements, which include:

  • The condo must have a budget that's deemed adequate by HUD
  • The condo must have a reserve fund that's at least 10 percent of the budget


It's this last one that's the killer because, in many parts of the country, it's common practice for condominiums not to have reserve funds. Instead, HOAs use assessments to pay for emergencies as they occur. While this may be a shortsighted method on the part of HOAs, many people elect not to contribute money each year to a reserve fund for an emergency that may or may not occur. This is especially true in places like Florida, where condos have a high turnover rate.

If you're a condominium owner, speak with your HOA about getting HUD approval. Otherwise, it may be a challenge - if not an impossibility - to refinance or sell with an FHA loan.

Published on December 15, 2010