Do you know the Eligible Properties for FHA and Conventional loans? Did you know that there are properties that can NOT be purchased through these programs? In this post I will share with you all the information regarding eligible and ineligible properties, the difference between downpayment for each type of property, in particular for Condominiums, that are the most desired and requested in South Florida.

FHA

Eligible Properties:

• Single Family Residence,
• Multifamily 1-4 Units,
• Modular, Manufactured and Log Homes,
• HUD Approved Condos,
• PUDs (Townhouses).

Ineligible Properties:

• Hawaii properties in lava zones 1 and 2,
• Hawaii Homeland Leasehold properties,
• Land Trusts except Illinois Land Trusts (see Illinois Land Trust section for additional information on that option),
• Condos Without HUD Approvals,
• Mobile homes,
• Condotels,
• Hotel Condominiums,
• Mixed-Use,
• Co-ops,
• Timeshares,
• Geodesic dome, Earth or Geothermal homes,
• Working Farms and Ranches,
• Property currently in litigation,
• Properties in a flood zone that do not participate in the National Flood Insurance Program,
• Properties with individual water purification systems (an individual water purification system is a system that is needed to make the water safe and meet code when the individual water supply is unsafe for human consumption unless the system is operating properly. This is not a system that is installed to improve the taste or softness of the water. Properties with individual water purification systems can be identified by reviewing the appraisal.),
• Indian land (leased or fee simple),
• Properties rated in “less than average” condition (unless using the HUD Repair Escrow program, and then must comply with HUD requirements for property),
• Refinances of Good Neighbor Next Door loans that were originated in the last 3 years,
• Properties with Manufactured Home Accessory Dwelling Units.

Conventional

Eligible Properties:

• Single Family Residence,
• Multifamily 1-4 Units,
• Modular, Manufactured and Log Homes,
• Warrantable Condos,
• Condo Conversions,
• PUDs Attached and Detached (Townhouses),
• Leaseholds,
• Rural Properties,
• HomePath Properties (Fannie Mae REOs).

Ineligible Properties:

• Hawaii properties in lava zones 1 and 2,
• Hawaii Homeland Leasehold properties,
• Mobile homes,
• Condotels,
• Properties with deed restrictions,
• Mixed-Use (for properties with business use per tax returns or appraisal),
• Co-ops,
• Geodesic dome,
• Earth or Geothermal homes,
• Community Land Trusts,
• Non-Warrantable Condos,
• PUD hotel/motel/resort type projects,
• Condominium hotel/motel/resort type projects,
• Properties in a flood zone that do not participate in the National Flood Insurance Program,
• Land Trusts (including Illinois Land Trust),
• Working farm, ranch, or orchard,
• Assisted Living/Group Homes,
• Houseboats,
• Investment Securities,
• Properties not suitable for year-round occupancy,
• Property without full utilities installed to meet all local health and safety standards,
• Property used for commercial or industrial purposes,
• Tax-sheltered syndicate,
• Timeshares,
• Unimproved land,
• Common Interest Apartments,
• Properties that do not meet local health and safety standards,
• Multi-family dwellings over 4 units,
• Commercial properties,
• Homes purchased using HomeStyle Financing,
• Properties currently in litigation,
• Properties rated with Condition Rating of C5/C6 or Quality Rating of Q6,
• Indian land (leased or fee simple),
• vacant land or land development properties,
• properties that are not readily accessible by roads that meet local standards,
• on-frame modular construction,
• units in condo or co-op hotels,
• boarding houses,
• bed and breakfast properties,
• Short-Term Rentals such as AirBNB:
  • Owner Occupied 1 Unit: Allowed when a separate room/unit in the borrowers primary residence is listed on AirBNB, as long as it meets all agency property eligibility requirements. If the room/unit is determined to be an ADU/Accessory unit (has a kitchen/bathroom/separate entrance independent of the primary dwelling), then ADU requirements would need to be met. Must meet all local ordinances/laws and must be of legal use. Any income generated from the separate room/unit may not be used in qualifying.
  • Second Home: Allowed when property is occupied by the borrower for some portion of the year, not using rental income to qualify and all second home requirements are met.
  • 2-4 Units or NOO: Allowed. If using rental income to qualify, must meet all agency property eligibility, and rental income requirements for short-term rentals.
• Properties that have a Property Assessed Clean Energy (PACE) loan are not eligible (such as the Home Energy Renovation Opportunity (HERO) Program) unless the lien will subordinate via a subordination agreement where the lien is no longer part of the property taxes that can take first lien priority (note, the HERO subordination agreement does not provide for this and is not eligible) and meets all Agency requirements,
• Builder Model Leaseback when used as leasing office/commercial space,
• Properties with Manufactured Home Accessory Dwelling Units.

FHA vs Conventional

Multifamily 2-4 units

Multifamily properties are one of the most sought after to buy in the United States, these properties are made up of 2 to 4 units. FHA approves loans for Multifamily properties as a Primary Residence entering with a minimum 3.5% downpayment for a credit score above 620. While Conventional programs the minimum downpayment to purchase Multifamily properties is 25%. With the exception of the programs Home Possible and HomeReady for First Time Buyers, where the minimum downpayment is 5%, as long as the borrower’s income does not exceed 80% Area Median Income, to find out the limits in your area you can visit these websites, Home Possible by Fannie Mae y HomeReady by Freddie Mac. In practice, multifamily properties need more income to qualify and usually those income are much higher than 80% of area median income and this fact disqualify this type of properties for Home Possible or HomeReady Conventional loans.

Condominiums

Properties that are located in Home Owner Associations (HOA), such as Condominiums, are much more complex to approve. Both loans, FHA and Conventional, need to be approved by the HOA in order to purchase these type of properties with the minimum downpayment.

If the HOA is already approved by HUD Department, then you can purchase them with a minimum 3.5% downpayment, for more information visit this link from HUD Department to search in your area, city, county or State. If the HOA is not on the approved list, then the approval process should be done. In South Florida few HOA meet HUD requirements and for this reason many of them are NOT Approved. In the particular case of FHA, the Single-Unit HOA Approval process can become a headache, clients may incur in more closing costs when they are buying Condominiums, since the HOA management generally have costs to request the necessary documentation as questionnaires, budgets, master insurance, etc.

Very similar happens for Conventional loans, although the approval process is more flexible, to be able to buy with a minimum of 3% downpayment. If the HOA cannot be approved, then the only program that allows you to purchase Condominiums is Conventional with a minimum downpayment of 25%. If the client has at least 680 credit score, another option is to add a second line of credit to help pay 15% of the initial downpayment, only having the borrower enter with 10% downpayment.

Contact Us for more Info

As a Mortgage Loan Officer in Florida, I can advise you throughout the buying process. If you are thinking of buying a property in Florida, you can call me or write me on WhatsApp or click here to contact me and I will be ready to provide you with a totally free Financial Advice.