A condominium community qualifies for FHA or Fannie Mae financing only after the project itself passes a review of its finances, governance, insurance, and legal standing. The FHA and Fannie Mae condo project approval requirements look at similar categories but set different numeric thresholds, and each agency also offers a lighter-touch path for cases that do not need the full workup. If the project fails, individual buyers cannot use that loan program on a unit inside it, no matter how strong their personal credit is.
FHA Project Requirements
HUD’s Single Family Housing Policy Handbook 4000.1 sets the thresholds a condo project must meet to appear on the FHA-approved list. Approval lasts two years before the association has to recertify.1U.S. Department of Housing and Urban Development. Condominium Project Approval and Processing Guide
Owner Occupancy
At least 50% of units must be owner-occupied.2U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 HUD can drop that to 35% for established projects at least one year old, but only when the association submits through the HUD Review and Approval Process, funds at least 20% of its budget into replacement reserves, and keeps delinquent units under 10%.3U.S. Department of Housing and Urban Development. Mortgagee Letter 2016-15
Delinquency
Under standard approval, no more than 15% of units can be more than 60 days behind on HOA assessments.4U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 A community with rising unpaid dues is the fastest way to fall out of compliance mid-cycle.
Investor Concentration
No single investor or entity can own more than 10% of units in a project with 20 or more units. In smaller projects the limit is one unit per investor.4U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 The cap keeps a single owner’s default from cascading through the association.
Commercial Space
In mixed-use developments, commercial floor area cannot exceed 35% of total floor area under normal review. HUD has discretion to grant exceptions up to 49%.4U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 Above the ceiling, HUD treats the property as a commercial venture and it loses residential FHA eligibility.
Insurance and Fidelity Coverage
The master policy must cover hazard, liability, and flood risks. For projects with 20 or more units, FHA also requires a fidelity bond or employee dishonesty policy equal to at least three months of assessments plus reserve funds.4U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
Special Assessments
Active or planned special assessments must be disclosed. HUD wants the board resolution authorizing the assessment, a per-unit cost breakdown, and the payment schedule, and the association has to show that collecting it will not push the project into widespread delinquency.4U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
FHA Single-Unit Approval
If a project is not on the FHA-approved list, a buyer may still use an FHA loan through Single-Unit Approval, available since 2019. The project has to have at least five units, a certificate of occupancy at least one year old, no manufactured homes, and no categorically ineligible characteristics. The 50% owner-occupancy rule still applies.2U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
FHA also caps its own footprint in a project. In buildings of 10 or more units, no more than 10% of units can carry active FHA-insured mortgages. In buildings with fewer than 10 units, only two FHA loans are permitted.2U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1 The lender completes Form HUD-9991 with the project-level data. The borrower either needs an “Accept” from FHA’s automated underwriting system or must take a maximum loan-to-value ratio of 90%.
Fannie Mae Full Review
Fannie Mae’s Selling Guide governs conventional loans on units in condo and other common-interest projects.5Fannie Mae. Project Standards The Full Review is the deeper of two tracks and applies whenever a transaction cannot use the Limited Review or the lender finds issues that warrant closer inspection.
Reserve Funding
The HOA must allocate at least 10% of annual budgeted assessment income to a replacement reserve account. Incidental income, utility pass-through fees, and special assessment revenue are excluded from the calculation. A professional reserve study can substitute for the 10% test if it shows adequate funded reserves and the project is meeting the study’s recommendations. That study must be less than three years old and prepared by a credentialed reserve professional, construction engineer, or CPA with reserve-study expertise.6Fannie Mae. Full Review Process
Owner Concentration
For projects with 21 or more units, no single entity can own more than 20% of units. In projects of 5 to 20 units, the limit is two units per entity.7Fannie Mae. Ineligible Projects More generous than FHA’s caps, but with the same purpose.
Litigation
Any active lawsuit involving structural safety, habitability, or the functional use of the project disqualifies it. Routine claims like a slip-and-fall covered by insurance do not, but a suit or pre-litigation demand that questions whether the building is safe to live in is a hard stop.7Fannie Mae. Ineligible Projects
Fidelity Insurance
Fidelity or crime insurance is required for projects with more than 20 units, unless the required coverage would be $5,000 or less. If the association keeps basic financial controls (separate operating and reserve accounts, dual-signature requirements on reserve checks) the minimum equals three months of total assessments. Without those controls, coverage must equal the maximum amount of funds in the HOA’s or management company’s custody at any time.8Fannie Mae. Fidelity/Crime Insurance Requirements for Project Developments
Fannie Mae Limited Review
The Limited Review is a lighter path for established condo projects. To use it, the project cannot fall under Fannie Mae’s ineligible-characteristics list, and no more than 15% of units can be 60 or more days past due on assessments.9Fannie Mae. Limited Review Process
The tradeoff is tighter loan limits. For a principal residence, the loan-to-value ratio is capped at 90%. Second homes and investment properties top out at 75%.9Fannie Mae. Limited Review Process Transactions above those limits, or with disqualifying conditions the lender uncovers, get bumped to Full Review. Fidelity insurance is not required under a Limited Review.8Fannie Mae. Fidelity/Crime Insurance Requirements for Project Developments
Characteristics That Disqualify a Project
Some features make a project ineligible no matter how healthy its finances or governance look. Catching these early saves everyone the paperwork.
Hotel and Short-Term Rental Operations
Fannie Mae will not finance units in projects that function as hotels, motels, or resorts. Triggers include a hotel or resort license held by the HOA, governing documents that require owners to put units into a rental pool, mandatory profit-sharing with a rental manager, or services like front-desk registration, daily housekeeping, or a central key system. Converted hotels stay disqualified unless they went through a gut rehabilitation that removed all hotel characteristics. Even a project name containing “hotel,” “motel,” or “resort” is a problem, unless it references historical use.7Fannie Mae. Ineligible Projects
Timeshares and Non-Real-Estate
Timeshare, fractional, and segmented-ownership projects are ineligible, as are projects whose property is not real estate: houseboats, boat slips, and cabanas.7Fannie Mae. Ineligible Projects
HOA-Run Businesses and Mandatory Memberships
If an HOA runs a restaurant, spa, health club, or similar business and pulls more than 10% of budgeted income from it, the project is ineligible under Fannie Mae rules. Mandatory recreational leases or required paid memberships in outside recreational facilities also disqualify a project.7Fannie Mae. Ineligible Projects FHA takes a similar line: developers cannot keep ownership of common areas after control transfers to the association, and management contracts, employment agreements, or recreational leases binding the HOA are only acceptable if the association can terminate them without penalty on 90 days’ notice after transfer of control.1U.S. Department of Housing and Urban Development. Condominium Project Approval and Processing Guide
Critical Repairs, Insolvency, and Deed Restrictions
Fannie Mae disqualifies projects with unfunded repairs costing more than $10,000 per unit that should be completed within 12 months. Repairs funded by a special assessment or handled by individual owners are excluded from that count.7Fannie Mae. Ineligible Projects Bankruptcy, liquidation, receivership, or other insolvency proceedings also disqualify a project. Under FHA rules, deed restrictions that prevent free conveyance, such as third-party consent to sell or caps on sale price, are similarly disqualifying.1U.S. Department of Housing and Urban Development. Condominium Project Approval and Processing Guide
How Approval and Expiration Work
FHA processes applications through one of two tracks. The HUD Review and Approval Process (HRAP) routes review to HUD itself. The Direct Endorsement Lender Review and Approval Process (DELRAP) lets authorized lenders approve projects internally, which is usually faster. Approved projects appear on HUD’s online list and remain there for two years before recertification.1U.S. Department of Housing and Urban Development. Condominium Project Approval and Processing Guide
Fannie Mae reviews run through the Condo Project Manager (CPM), where lenders enter project data and certify eligibility.10Fannie Mae. Condo Project Manager FAQs Both Limited and Full Reviews for established projects must have been completed within one year before the loan’s note date. Full Reviews for newly built projects have a 180-day window. Projects approved directly by Fannie Mae through CPM stay valid until the approval expires in the system.11Fannie Mae. B4-2.1-01 General Information on Project Standards
What a Missing Approval Costs the Community
When a project loses or never obtains approval, buyers who need FHA or certain conventional financing cannot close on a unit there. The buyer pool shrinks, and prices tend to lag comparable approved projects nearby. Owners who financed with an FHA loan may also find they cannot refinance if the project’s approval has lapsed.
Approval is lost the same way every time: rising delinquencies, owner-occupancy that slips below the required threshold, lapsed insurance, unresolved litigation, or a board that forgets to recertify. FHA’s two-year clock means even a well-run association can lose status on a filing mistake. The fix is to identify the failing requirement, correct it, and resubmit. Pending sales that depend on the loan program can fall through in the interim. FHA’s Single-Unit Approval can keep individual FHA transactions moving while a board works on full certification, but that path does not help conventional or VA borrowers.
A Note on VA Loans
Veterans using VA home loan benefits face a separate process. The VA keeps its own approved condominium list, independent of FHA or Fannie Mae certification, and stopped accepting FHA approvals as a substitute in 2009. Project status can be checked through the VA’s LGY Hub Condo Report.12U.S. Department of Veterans Affairs. LGY Hub Condo Report A community that wants access to the widest possible buyer pool has to keep all three approvals current.