If you are interested in buying a condo and are planning to use Federal Housing Administration (FHA) financing, make sure you check out the FHA’s Approved Condo List. It will only lend money for condominium projects that are on that list.
It’s more challenging in general to get financing for condos, because associations play such a large role in the day-to-day operations of the building. An association is often responsible for such things as landscaping and general maintenance, so if financial problems occur (up to and including a full collapse), there will be an impact on individual units’ saleability as well as on residents’ quality of life.
In the case of major property devaluations – combined with the lack of an association – investors can come in and turn the majority of the development into rental properties. The FHA has restrictions on what percentage of any development can be rental units, and that affects the amount it will lend against that particular development.
If a development isn’t on the FHA Approved Condo list, it will be for one of two reasons: either it has never gone through the approval process, or it has been through it, and for whatever reason was turned down.
In the first situation, it may just need to be reviewed, then approved by a third party evaluator. In the second, there may have been a good reason why it wasn’t approved. To learn which developments have been approved in your area, do an Internet search on FHA Approved Condo List.