Part of the FHA loans in Arizona guide, where every rule on this page is cited and dated.
A buyer finds a condo they want, writes an offer with FHA financing, and learns in week two that the building is not FHA approved. Historically that was the end of it.
It is no longer automatically the end of it, and the path that exists now is one of the more useful underused tools in the program.
The requirement
Why the building has to qualify and not just you
On a condominium, you are buying a unit and a share of a shared financial entity. The association's finances, insurance and legal exposure affect the collateral, so the lender underwrites the project as well as the borrower.
You can have excellent credit, strong reserves and a clean file and be declined because of the building. That is the part that feels unfair and is simply how it works.
What project review examines:
Owner occupancy ratio. The share of units occupied by owners rather than tenants. A building that has drifted heavily toward rentals becomes ineligible for some financing. In parts of Scottsdale, where short and long term rental use is common, this is a live constraint rather than a theoretical one.
Budget and reserve adequacy. Associations are generally expected to fund reserves at a minimum share of the operating budget. An association holding dues down by deferring reserve contributions can fail.
Insurance coverage. Master policy limits, deductibles, and in some cases fidelity coverage. Deficient coverage is common, fixable, and requires the association to act, which takes time you may not have.
Litigation. Pending litigation against the association can stop financing outright. Construction defect litigation is the usual culprit.
Single-entity concentration. One owner holding too large a share of units fails many programs. In smaller Scottsdale buildings, one investor with a handful of units can be enough.
Delinquency rates among owners on their dues.
Special assessments, pending or recent, which also affect your own qualifying ratio.
Single-unit approval, the part people do not know
The significant development: FHA allows, under defined conditions, approval of an individual unit in a project that is not itself approved. Which means a building being unapproved is no longer automatically a dead end.
What to understand about it:
It is conditional, not automatic. There are requirements, including limits on what share of units in a project can be approved this way, and the project still has to satisfy certain criteria. It is a narrower door, not an open one.
It takes time. Lead time that a thirty day escrow does not have spare. If this is your path, it belongs in week one and the closing date should reflect it.
Not every lender does them. This is the practical obstacle. Single-unit approvals are extra work, and plenty of originators will simply tell you the building is not approved and move on, because that is the easier answer. Ask directly whether the lender processes single-unit approvals. The answer tells you something about who you are working with.
It is worth asking about on every unapproved building you like. The downside of asking is a short conversation. The downside of not asking is losing a property you could have bought.
The practical sequence
1. Check the project's status before you write. Not after. HUD maintains a searchable list of approved condominium projects, and your lender or agent can check it in minutes. Doing this first prevents the entire problem.
2. If it is approved, confirm the approval is current. Approvals expire and have to be renewed. An expired approval is functionally an unapproved project.
3. If it is not approved, ask about single-unit approval before you conclude you cannot buy it.
4. Either way, ask the association the direct questions:
- What is the owner occupancy ratio?
- Is any special assessment pending, approved, or under discussion?
- Is the association involved in any litigation?
- What share of units does any single owner hold?
- What are the total monthly dues, for every entity billing the address?
Ask these in week one. Associations answer on their own schedule and you are on a deadline. See When HOA Documents Delay a Closing.
5. Get the full dues figure to your lender. Every dollar goes into your debt-to-income ratio, and on an FHA file where the ratio is frequently the binding constraint, high dues consume approval capacity fast. See HOA and Club Dues in Your Ratio.
If FHA will not work on the building
Three real alternatives before you give up on the unit:
Conventional financing. Project review requirements are different and in many cases easier to satisfy than FHA approval. A building that cannot get FHA approved may be perfectly financeable conventionally. If your credit supports conventional, this is frequently the fastest answer. See FHA or Conventional.
Portfolio and non-QM lending on non-warrantable projects. Where a project fails conventional review too, it is called non-warrantable, and portfolio investors lend on them. Pricing is higher and down payment requirements are frequently higher, but it is a real path rather than a consolation prize. See Non-Warrantable Condo Financing.
A different building. Sometimes the honest answer. A project with deferred reserves, pending litigation and a heavy rental concentration has told you something about itself, and the financing difficulty is a symptom rather than the problem.
For listing agents with condo inventory
You can remove this friction from your own listings.
Know your project's FHA status before you list and put it in the agent remarks. If it is approved, say so, because it widens your buyer pool measurably.
If it is not approved, find out whether single-unit approval is realistic, so you can answer the question instead of losing the buyer.
Order the association documents when you take the listing. It shortens escrow and surfaces any problem while you still have time to deal with it.
Know the exact dues figure and whether any assessment is pending. Buyers' lenders will ask, and a wrong answer costs a week.
Why bring this file to us
- We quote the handbook with the section and the date, not from memory. Every guideline on this site carries its citation and when it was last verified, and says so when it is getting old.
- We tell you the overlay, not just the rule. The published floor and what investors actually do are two different numbers, and only one of them decides your file.
- Broker model. When one investor's overlay is the obstacle, we move the file rather than tell you no.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending, NMLS #173141, lending in Arizona since 1999 and a 2025 Presidents Club Winner at CMG Home Loans. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
Call before you shop, not after you are in contract. Most of what goes wrong in an FHA file was decidable in week one.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. FHA is a mortgage insurance program administered by the Department of Housing and Urban Development; loans are made by approved lenders, not by HUD or FHA. Guideline requirements are set out in HUD Handbook 4000.1 and change over time, and individual investors frequently impose requirements stricter than the published minimums. Nothing here is a substitute for the current handbook or for an underwriting decision on your specific file. Rates, terms and program guidelines change and depend on credit approval, property appraisal and other qualifying factors. Not all applicants will qualify. This is not legal or tax advice.
Looking at a specific home? Send me the address and I will run the numbers: rickykhamis.com/analyze
