How FHA Single-Unit Approval Benefits California Condo Buyers

If you’re planning to buy a condo in California, and you want to use the FHA loan program, you should know about the FHA’s “single unit approval” process.

Through this program, individual condo units can now receive FHA approval and qualify for financing. This means a home buyer can use an FHA backed mortgage loan to purchase that individual unit.

In the past, the entire condominium project had to be approved. So the single unit approval process essentially gives California home buyers more options and greater flexible. It can also benefit sellers, as we will discuss later.

in this article, we will take a deep dive into the FHA single unit approval program for California condos, and explain how it could benefit you as a home buyer.

FHA Single Unit Approval for California Condos

Federal Housing Administration (FHA) loans allow eligible borrowers to purchase a house with as little as 3.5% down. This program also offers flexible qualification criteria, when combined to conventional or regular home loans. As a result, FHA loans are a popular financing option among California home buyers with limited funds in the bank, as well as those with past credit issues.

But like all government-backed mortgage programs, FHA loans have specific rules and requirements for buyers. One of those rules has to do with condo purchases.

Generally speaking, any condo in California to be purchased with an FHA loan must be approved by the Department of Housing and Urban Development (HUD). This is the federal department that manages this loan program.

Broadly speaking, there are two types of condo approvals:

• HUD / FHA approval can be granted to an entire condominium project. In these cases, home buyers do not need to have the individual unit approved, since the entire building has already been approved by HUD.
• Home buyers can also obtain what’s known as a single unit approval for California condos. These used to be referred to as “spot approvals.” In this scenario, the home buyer / borrower obtains approval for a single condo unit, within a project that has not yet been approved by HUD.

That’s an important point worth restating: the Federal Housing Administration’s single unit approval process allows individual condo units to be eligible for FHA-insured loans, even when the entire condominium project has not received FHA financing approval.

As it states on the Department of Housing and Urban Development website:

“FHA insures condominium loans for up to 30-year terms to purchase or refinance a unit in an FHA-approved condominium project or in a project that is not FHA-approved but meets the Single-Unit Approval requirements. For project approval or recertification, eligible projects must be complete and exist in full compliance with applicable state law requirements…”

This program is designed to provide greater flexibility for home buyers and help boost the housing market by expanding the pool of eligible buyers.

Prior to the single unit approval program, if a condo complex was not approved for FHA financing, individual unit owners were not able to obtain FHA-insured mortgages. This restriction limited the number of potential buyers. It also made it harder for condo owners to sell their units, and for the very same reason.

How It Benefits Home Buyers

California is an expensive state in which to buy a home. Because of this, buyers often look for ways to save money on a purchase. One way to do that is by buying a condo rather than a traditional single-family detached home.

Generally speaking, condo prices tend on average, condos tend to be less expensive than detached properties. According to the California Association of Realtors, the median sale price for a traditional single-family home was $751,330 in early 2023. At that same time, the median price for condos and townhomes was around $580,000.

California home buyers can also save money by minimizing their down payment expense. And when you buy a condo using an FHA loan, you can get the best of both worlds. That’s because the FHA program allows for a relatively low 3.5% down payment.

The FHA single unit approval for condos increases the number of home buyers in California who can qualify for FHA financing. So it extends the benefits of that program to a larger pool of buyers.

Basic Requirements for Condo Approval

You can find the full list of requirements for single unit approval on the HUD website. Here are some of the basic requirements for home buyers who want to purchase a condo unit under this program:

• The condo unit that you wish to purchase must be located in a condominium project that is currently not FHA approved.
• The condo unit must be completely finished, habitable, and ready for occupancy (a.k.a., move-in ready).
• The condominium project must meet some additional requirements for project approval, including the owner-occupancy ratio and the financial status of the project.

Have questions? Bridgepoint Funding serves home buyers all across the state of California. We offer a broad range of financing options, including the FHA loan program. Please contact us if you have questions about buying a condo through this program, or if you would like to apply for a loan.