The FHA mortgage program encourages condominium ownership, in which the separate owners of the individual units jointly own the development's common areas and facilities. It is one particularly popular alternative to traditional home ownership.
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.
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.
Any person able to meet the cash investment, the mortgage payments, and credit requirements can apply. The program is limited to owner-occupants. Applications are made through an FHA-approved lending institution. Most lenders who use this mortgage insurance product, however, make their requests through a provision known as Direct Endorsement, which authorizes them to consider applications without submitting paperwork to HUD.
Q: What is the debt-to-income ratio for FHA loans?
A: The FHA allows you to use 29% of your income towards housing costs and 41% towards housing expenses and other long-term debt. With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing and other debt.
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