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FHA Condo Loans

The FHA has a couple of condo loan programs known as 234c loans, again based on the section of the civil code that lays out the loan parameters.  The loans are similar to the 203b loans for individual houses in terms of down payment requirements and interest limitations.  There are, however, some guidelines regarding the condo development as a whole that must be met.

• The condominium project must be complete. There should be no further development plans for the project. 

• Control of the common areas of the project must have been turned over to the unit owners association for at least one year and ownership must be bound to the association.

• The project must have adequate flood, hazard and liability insurance. 

• Individual units in the project must either be owned outright by the resident or have eligible leasehold interest. The project’s legal documents must provide for undivided ownership of common areas by unit owners and unit owners must have the right to use all facilities on an unrestricted basis. 

• The project’s documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title are generally unacceptable. Certain governmental or nonprofit programs designed to assist in the purchase or rental of low- or moderate-income housing are exempted from the restrictions on conveyance provisions.  These programs are usually involved in assisting on down payments or on rehabilitation loans or grants.

The FHA also has a so-called “Kiddie Condo Program” that is available to college students or recent graduates. It is a type of mortgage program that allows a person to co-borrow with a blood relative, using their relative’s credit history and scores.   The program allows the title of the property and the loan to be in both of the owners’ names.

The relative with the credit line and the down payment engineers an FHA insured Kiddie Condo loan.  As with other loans, the down payment is 3% and the lenders are bound to certain interest limitations.  While the student (and co-owner) resides in the unit, and perhaps collects rent from roommates, the parent or relative who financed the purchase may be eligible to take the interest on the loan and real estate taxes as a tax deduction.

This program helps the student establish credit and provides college housing that will provide a return on investment for both student and the relative/investor.