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FHA MORTGAGES FOR CONDOMINIUM UNITS
This HUD program insures the loan for a person who purchases a unit in a condominium
building.
One of the many purposes of FHA mortgage insurance programs is to encourage lenders
to make affordable mortgage credit available for non-conventional forms of ownership.
Condominium ownership, in which the separate owners of the individual units jointly
own the development's common areas and facilities, is one particularly popular
alternative. Insurance for condominiums, such as is provided through Section 234(c),
can be important for low- and moderate-income renters who wish to avoid being displaced
by the conversion of their apartment building into a condominium.
Type of Assistance:
This program insures a loan for as many as 30 years to purchase a unit in a condominium
building -- which must contain at least four dwelling units and can be detached or semidetached,
a rowhouse, a walk-up, or an elevator structure. The loan is made by a lending institution, such
as a mortgage company, bank, 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, downpayment requirements
can be low--3 percent or less--because FHA insurance allows homebuyers to finance about 97
percent of the home's cost through their mortgage. 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 location and the number of units being purchased.
However, Section 234(c) does have some additional, unique 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 conversion occurred more than one year before the
application for insurance; (2) the potential buyer or co-buyer was a tenant of
that rental housing; 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.
Eligible Customers:
Any creditworthy potential owner-occupant who meets FHA underwriting criteria and
will make the condominium unit their principal residence is eligible for a mortgage
insured under this program.
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