When considering the purchase of a condominium project with a Federal Housing Administration or FHA mortgage, it is important to make sure the project is on the FHA’s “approved” list of condo projects.
One of the benefits of obtaining an FHA loan to purchase a home is that in many cases, the amount of the down payment will be considerably less than other types of mortgages. The amount of down payment for an FHA loan is about 3 ½ percent of the mortgage instead of 10-20 percent required for a conventional mortgage.
The FHA is a government-run mortgage insurance agency that offers mortgages with a lower down payment and maybe lower interest rates than conventional mortgages. This allows some people to be able to afford to purchase a home who would not be able to otherwise. However, purchasing a condominium with FHA loans can be more complicated than using FHA loans to purchase a single family home.
If you are putting down less than 20 percent of the mortgage amount, you will need to pay PMI or Private Mortgage Insurance each month until your mortgage balance reaches the 20 percent of the value of your home. This amount needs to be considered when determining how much you can afford for a monthly mortgage payment. Also, your mortgage payment will include payment towards the principal, interest payment, real estate taxes and homeowners insurance.
In the first several years of the mortgage, most of your monthly mortgage payment will go towards the interest charges and make very little headway towards paying off the principal. If you have extra money, it is advised to apply it towards the principal to be able to pay off your mortgage early and save money on interest charges in the long run. If you have a mortgage for 30 years, when you consider the interest payments you made, you could end up paying twice the price or more than the original price of the home.
To be included on the FHA approved list, a condominium must have been declared and exist in full compliance with applicable state law requirements of the jurisdiction it is located and all other applicable laws and regulations.
The rules to be on the approved list have recently been revised to make it easier for more condo projects to be approved for FHA financing.
In order to obtain FHA financing, single family homes and condo properties must be free of heath and safety issues such as broken windows, broken stairs, missing handrails and peeling paint. Paint that was applied before 1978 could contain lead. Because of this, if there is peeling paint on older properties, likely applied before 1978, it must be scraped and repainted to meet the requirements for FHA financing.
There are specific requirements for FHA financing when using it to purchase a condominium property.