New FHA Loan Condo Rules Going Into Effect

In the past if you were looking to use an FHA Loan to buy a condo the process was a bit contrived, but you could do it through a process called a spot-loan approval. With the recent and ever tightening of the FHA mortgage loan program policies underway at FHA, mortgage companies can no longer get spot-loan approvals for loans that involve a condo.
Condos are a special breed of real estate as they do not have stand alone walls and you do not own the land around the condo like you do in a traditional stick built home. As such, in many condominium developments, you only own up to the air space between the wall of the adjacent condo and the outside of your unit for example. Because of these and other special homeownership guidelines employed by the Condo assocation there is a special approval process that all condo projects must go through to get FHA project approval in order to allow FHA home loan financing on the individual condo units in the development.
In the past, a mortgage lender could go through a special "spot-approval" process that if passed would essentially give a waiver to the home buyer thus allowing the homebuyer to obtain FHA home loan financing. This spot-approval essentially used to make up for the fact that the project was never submitted to FHA by the project owners to have the overall condo project approved for FHA financing. This approval process took time and effort and in many cases project owners didn’t want to bother with the process.

This new FHA rule on condo approvals could have a significant impact on condo developers who have not gone through the project approval process as FHA finances about 30% of all mortgages in the US as of early 2010.