FHA Condo Approval Requirements, Single-Unit, and Recertification

To become FHA-approved, a condominium project has to meet HUD’s requirements on owner-occupancy, commercial space, reserves, insurance, and legal status, then pass a documentation review through either HUD staff or a qualified lender. Approval is what allows buyers in the building to use FHA-insured mortgages, with down payments as low as 3.5 percent of the purchase price.¹ Without it, a large segment of buyers is effectively locked out. The FHA condo approval requirements below come from HUD Handbook 4000.1 and the federal regulation at 24 CFR 203.43b, and they apply both at initial approval and at recertification.

Project-Level Standards HUD Looks For

The standards are meant to confirm that the project is financially stable, primarily residential, and not over-concentrated with government-backed loans.

Owner-Occupancy

At least 50 percent of the units must be owner-occupied as a primary or secondary residence rather than rented out.² A secondary residence counts as long as the owner lives there for part of the year and does not rent it out for the majority of the calendar year. HUD can reduce the threshold to as low as 30 percent on a case-by-case basis through an exception granted during the review.³

Commercial Space

Non-residential space cannot exceed 35 percent of the total floor area under the standard rule. HUD may grant exceptions allowing up to 55 percent when local conditions or project-specific factors justify it, and the exception can be requested under either review path.⁴

Reserves and FHA Concentration

The annual budget must direct at least 10 percent of monthly unit assessments into a replacement reserve fund for long-term capital repairs. HUD may accept a lower figure if the association provides a reserve study completed within the preceding 36 months that supports it.⁵

FHA will insure mortgages on no more than 50 percent of the total units in any approved project.⁶ The regulation permits HUD to set that ceiling anywhere from 25 to 75 percent, and it currently sits at 50 percent by HUD notice. Separate concentration limits cap how many units a single owner or group of related owners can hold.

Insurance

Every approved project must carry hazard insurance on the building and common areas, general liability insurance covering common areas and public ways, and fidelity insurance (a fidelity bond) protecting against theft or dishonesty by anyone handling association money, including management companies. For single-unit approvals, the minimum liability coverage is $1 million per occurrence.⁷ If any part of the building sits in a FEMA-designated Special Flood Hazard Area, flood insurance is required on individual units and common areas.⁸

Projects That Cannot Qualify

Some project types are categorically barred, regardless of how well they’re run. If your building falls into one of these categories, no amount of paperwork will change the outcome:

Condotels, including hotel-to-condo conversions and any project offering daily or weekly rental services.
Timeshares and other fractional or time-based ownership arrangements.
Houseboat projects.
Projects requiring owners to rent their units or hand occupancy control to a management firm.
Projects that prevent the owner from actually living in the unit.
Multi-dwelling units, where one legal condo unit contains more than one separate living space.
Assisted living facilities, generally, when the project requires owners to buy care services or has significant commercial healthcare components.
Projects where the developer keeps ownership of common areas or amenities after transfer to the HOA.
Properties within designated coastal barrier resource areas along the Atlantic, Gulf of Mexico, or Great Lakes.

Projects where more than 25 percent of the total space serves non-residential purposes, including live/work units, are also ineligible.⁹ That threshold is stricter than the 35 percent floor-area limit that applies at the project level for otherwise eligible projects.

New Construction and Phased Developments

New construction carries an extra requirement: at least 30 percent of the total units must be sold or under contract before FHA will endorse a mortgage on any unit in the project.⁹ The developer documents this with sales agreements, loan commitments, or a certified list of closed and under-contract units. Existing projects and non-gut rehab conversions are exempt from the presale rule.

Phased developments can qualify, but FHA requires legal phasing rather than market phasing. For vertical buildings, floors must be legally phased in groups of at least five consecutive residential floors, a temporary certificate of occupancy must be in place, all common areas and amenities must be complete, and the developer must have a third-party completion bond.

Single-Unit Approval as an Alternative

When the project itself has not been FHA-approved, a buyer isn’t automatically shut out. Under 24 CFR 203.43b, a lender can seek FHA insurance on one unit through Single-Unit Approval.³ The restrictions are tighter, but it lets well-managed buildings participate without full project approval.

To qualify, the project must have at least five dwelling units and cannot be a manufactured housing community. It cannot be a project HUD previously rejected or that was withdrawn for non-compliance. The project still has to meet the core eligibility rules for insurance, financial condition, and residential character, though HUD may apply a less stringent subset by notice.

Concentration is where Single-Unit Approval bites hardest. For projects with 10 or more units, no more than 10 percent of the units can carry FHA-insured mortgages through this path (the regulation gives HUD a 0 to 20 percent range, with the current cap set at 10 percent by notice). For projects with fewer than 10 units, no more than two FHA-insured mortgages are permitted at any time.³ Those caps are considerably tighter than the 50 percent allowed in fully approved projects.

The lender starts the process during FHA case number assignment, then submits Form HUD-9991 with supporting documents.¹⁰ The case is held until HUD approves or rejects the unit. Single-Unit Approval does not apply to FHA-to-FHA streamline refinances or HUD Real Estate Owned transactions.

Documentation the Association Needs

Most applications stall in the paperwork. HUD expects more detail than many boards anticipate.

The centerpiece for full project approval is Form HUD-9992, the FHA Condominium Project Approval Questionnaire. (Form HUD-9991 is the parallel document used for single-unit approvals.) The questionnaire asks about financial condition, active litigation, insurance coverage, delinquency rates, and reserve funding.¹¹ The applicant also submits the recorded master deed and community bylaws, the current year’s operating budget, and the most recent year-end financial statements.

Two items catch a lot of associations off guard. First, the questionnaire asks how many units are more than 60 days past due on association dues and special assessments.⁷ Under Handbook 4000.1, projects with more than 15 percent of units seriously delinquent face significant hurdles to approval.

Second, litigation. HUD requires verification that the project has no current or pending lawsuit, arbitration, or mediation relating to the safety, structural soundness, habitability, or functional use of the building, and lawsuits concluded within 12 months of the application count too. Any other litigation that exceeds the association’s insurance coverage is also disqualifying.¹² Foreclosure actions and suits to collect past-due assessments where the association is the plaintiff do not count as disqualifying.

Insurance documentation ties the package together. Certificates or full policies for hazard, general liability, and fidelity coverage must show coverage amounts, named insureds, and policy periods, plus flood insurance where applicable.

How the Package Gets Reviewed

Once assembled, the file goes through one of two review paths.

Under the HUD Review and Approval Process (HRAP), the package goes to FHA staff at the jurisdictional Homeownership Center. HUD’s stated processing target is 30 calendar days from receipt, though incomplete packages that require follow-up can stretch well beyond that.¹³

The Direct Endorsement Lender Review and Approval Process (DELRAP) lets qualified lenders review and approve projects themselves. Not every lender qualifies; DELRAP authority requires unconditional Direct Endorsement approval, condo-experienced staff, a track record of condo loans, and a quality control plan with DELRAP provisions.¹⁴ If your lender has DELRAP authority, the review can move faster because HUD staff aren’t the bottleneck.

Once approved, the project lands on HUD’s active approved list, and lenders can start processing FHA applications for units in the building. Buyers, agents, and lenders can verify a project’s current status and expiration date through HUD’s Condominium Search tool at entp.hud.gov.¹⁵

Recertification Before Approval Lapses

FHA approval is not permanent. It has to be renewed through recertification before the expiration date. If it lapses, buyers can no longer obtain FHA-insured financing in the building until the association completes a full re-approval. Every month without eligibility shrinks the buyer pool and can affect resale values across the project.

Recertification is an abbreviated version of the initial application. It still requires an updated project questionnaire, the current annual budget, renewed insurance certificates, and the most recent financial statements. HUD uses those documents to confirm the project still meets its operational and financial standards.

Associations that let approval lapse by accident usually find the re-approval process more burdensome than a timely recertification would have been. Board members turn over, records get lost, and reconstructing historical financials after the fact costs time and money. A calendar reminder tied to the expiration date, with one board member assigned to own the process, is the simplest way to keep the project continuously eligible.

1
U.S. Department of Housing and Urban Development. What Is the Minimum Down Payment Requirement for FHA
2
Thomson Reuters Westlaw. FHA Expands Condominium Financing Eligibility
3
eCFR. 24 CFR 203.43b – Eligibility of Mortgages on Single-Family Condominium Units
4
Federal Register. Project Approval for Single-Family Condominiums
5
eCFR. 24 CFR 203.43b – Eligibility of Mortgages on Single-Family Condominium Units
6
U.S. Department of Housing and Urban Development. FHA Issues New Condominium Approval Rule
7
U.S. Department of Housing and Urban Development. Form HUD-9991 – FHA Condominium Loan Level/Single-Unit Approval Questionnaire
8
U.S. Department of Housing and Urban Development. Mortgagee Letter 2024-20 – Adoption of Federal Flood Risk Management Standard for Minimum Property Standards in Special Flood Hazard Areas
9
U.S. Department of Housing and Urban Development. Condominium Project Approval and Processing Guide
10
U.S. Department of Housing and Urban Development. Case Number Assignment – Processing
11
U.S. Department of Housing and Urban Development. FHA Condominium Project Approval Required Documentation List
12
U.S. Department of Housing and Urban Development. HUD Handbook 4000.1 – FHA Single Family Housing Policy Handbook
13
U.S. Department of Housing and Urban Development. How Do I Submit a Condominium Project to HUD for Approval and What Is the Timeframe for Processing
14
eCFR. 24 CFR 203.8 – Approval of Mortgagees for Direct Endorsement Lender Review and Approval Process (DELRAP)
15
U.S. Department of Housing and Urban Development. Condominiums