FHA Lowers Condo Owner-Occupancy Threshold from 50 percent to 35 percent

by | Nov 1, 2016 | Eligibility, News Room, Reverse Mortgages

FHA owner-occupancy

The FHA has lowered owner-occupancy standards for some existing condo developments.

The Federal Housing Administration (FHA) has lowered its owner-occupancy standard for existing condominium developments from 50 percent to 35 percent effective Oct. 26. This change could make more condos eligible for FHA-backed mortgages, including reverse mortgages. The announcement comes on the heels of a proposed rule, currently in a public comment period, that could allow FHA financing for individual condo units.

FHA defines owner-occupied units as “principal residences, secondary residences, currently occupied units by the owners or units that have been sold to purchasers who intend to occupy them as a primary or secondary residences.”

FHA says the move to lower the condominium owner-occupancy threshold balances its obligations under The Housing Opportunity through Modernization Act of 2016 with its position that owner-occupants help ensure condo developments remain financially stable. FHA also says the existing owner-occupancy requirement maintains the stability of its Mutual Mortgage Insurance Fund.

For existing condominium projects – which FHA defines as “fully completed and more than one year old or non-gut rehab conversions” – at least 50 percent of the units must be owner-occupied or sold to owners who intend to occupy them. FHA says the owner-occupancy threshold may lowered to 35 percent if the project meets four conditions:

  • Applications must be submitted under the HUD Review and Approval Process (HRAP);
  • The development must demonstrate it has 20 percent of its budget set aside in replacement reserves for capital expenditures and deferred maintenance;
  • No more than 10 percent of total units can be more than 60 days behind on their association fee payments; and
  • Developments must provide three years of acceptable financial documents.


FHA says it will require condo developments to demonstrate the owner-occupancy percentage by documenting:

  • Copies of sales agreements and loan commitments;
  • Evidence that units have closed and are occupied by the owner; and
  • Spreadsheets, charts or lists certified by a developer or builder that show all the units sold, under contract or closed that are or will be occupied by the owner.

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