How Spot Approvals Changed FHA Financing of Condos

Tuesday, December 15, 2020, 6:00 PM | Leave Comment

The Department of Housing and Urban Development (HUD) Secretary Ben Carson, to offer more options to people who wanted to buy a home, brought back spot approvals banned in 2010.

According to the Federal Housing Administration (FHA) Commissioner Brian Montgomery, this move happened on October 15, 2019, after more than three years of planning.

Before they brought back spot approvals getting a condo approved through the FHA was extremely hard, and only about 6% of condos in the country.

Including the financing of the purchase of a condo with an FHA loan.

Spot Approvals Information

Before the return of Spot Approvals, guidelines required for the whole complex to be FHA approved before an FHA loan could be used to finance the purchase. Spot Approvals can make all the difference as they only require one unit to be approved instead of the whole complex, making the process much more straightforward for the buyer.

However, getting an applicant’s condo spot approved for an FHA loan has specific requirements before moving forward.

These requirements include:

  • The condo is in a complex that is not FHA approved.

  • Approved condos must have at least 50% of units occupied.

  • FHA can finance up to 50% of the total amount of units approved in a complex.

  • Less than 35% of the complex usable for commercial purposes.

  • A complex with more than ten units can only allow up to 10% of units to be FHA insured.

  • If a complex has less than ten units, only two can be FHA insured.

Most members of the National Association of Realtors® saw the return of spot approvals as a great win, for it would entice more potential buyers to consider buying a condo. The increase in potential condo purchasing customers will be the benefits that come from an FHA loan.

FHA Loan Information

One question you might have is what an FHA loan is? They are government-guaranteed home loans that protect lenders from financial loss if the borrower ends up not paying their monthly loan payment. This increased protection towards lenders allows them to take more significant risks when deciding to be more lenient with their eligibility requirements. That is why these loans are perfect for first-time borrowers who might not meet the more conventional loans’ eligibility requirements.

Eligibility requirements for an FHA loan include steady employment for at least two years before applying. A valid social security number, legal residency in the country (a green card is acceptable), and the applicant must be 18 years old. Also, FHA home loans have a credit score requirement of 580, and some lenders are even willing to approve credit scores as low as 500, with an increased down payment.

If an applicant has gone through financial struggles in the past, it is still possible to get an FHA loan after bankruptcy. Chapter 7 bankruptcy recipients are eligible for an FHA loan as long as there is a two-year gap between the disbursement date and the FHA loan application date, and the applicant has a job for those two years. Chapter 13 recipients can also qualify, although they would need court approval and at least one year of making monthly payments on time.

Applicants who meet all eligibility requirements will enjoy benefits like a down payment of 3.5%, much lower than the conventional standard of 20%. An approved borrower will be able to enjoy lower monthly mortgage payments and lower closing costs. Additionally, FHA loans are assumable, which means that if the initial buyer decides to sell the property, they will pass on the loan to a new buyer who will assume it.


The return of spot approvals is sure to bring an increased number of borrowers looking to purchase a condo using an FHA loan. A HUD estimate states that there will be about 60,000 more approved condos due to spot approvals. In addition, the HUD also pointed out that this increase in demand and supply might lead to a firmer price for condos.

Phil Georgiades is the CLS for FedHome Loan Centers, a brokerage specializing in first-time home buyer loans. He has more than 22 years of working in real estate in a professional capacity. If you’d like to learn more about government loans or submit an FHA loan application, please contact us by calling (877) 432-5626.

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