Can Our Condominium Get FHA Approved Before Construction?

elenathewise_3Recently, I received a call from a developer in California who asked me at what point during construction is a condominium eligible for an FHA condominium project approval.  She has a condominium approved for development by the city but ground had not been broken as of yet.  She said that she had spoken with other project consultants and FHA and had received conflicting information.

In speaking with FHA, she was told that proposed projects can be approved prior to construction and are approved at this stage quite often.  Projects do not need to be complete or even have phase completion to be approved.

In speaking with the other project consultants, she was told that the first phase of the project – or at least some units – must be completed in order to get approved with FHA.

I ran into a similar situation back in 2010 when I was working with the developer of a new condominium project.  Back then, I was told by FHA that it does allow project approval even before construction has begun and I have found this to be true in practice.

In addition, if the project is approved before construction, once they are built, completed units would have to be annexed to the project approval in FHA’s system before they are available for FHA unit financing.  Only those units that are noted in FHA’s system would be eligible for financing provided that all other requirements are met.

While the project may be eligible for approval, FHA loans are not available in the project until the loan-level requirements have been met.  Besides the project-level requirements FHA has for condominiums to get on its approved condominiums list, loan-level requirements must also be met when a borrower is applying for a loan.

A proposed new construction condominium project can meet the project-level requirements to get on the FHA Approved Condominiums List even before any of the units have been built.  But FHA will not allow unit financing until the completed units are annexed AND 30% of the units in the current legal phase have been sold or are pending sale and at least 50% of the sold units are owner-occupied.  [There are other loan-level requirements.]

The developer was thrilled to learn of this and said to me “I have spoken to a lot of people and you are the first person who could explain this to me in a manner which I could understand.”

I was just pleased that I was able to clear her confusion.

Top Photo Credit: (c) Can Stock Photo / elenathewise