Mortgage Insurance for Condominium Units (Section 234(c))

Summary:
This program insures the loan for a person who purchases a unit in a condominium building.

Purpose:
One of the many purposes of FHA's mortgage insurance programs is to encourage lenders to make affordable mortgage credit available for non-conventional forms of ownership. Condominium ownership, in which the separate owners of the individual units jointly own the development's common areas and facilities, is one particularly popular alternative. Insurance for condominiums, such as is provided through Section 234(c), can be important for low- and moderate-income renters who wish to avoid being displaced by the conversion of their apartment building into a condominium.

Type of Assistance:
The program insures a loan for as many as 30 years to purchase a unit in a condominium building--which must contain at least four dwelling units and can be detached or semidetached, a rowhouse, a walk-up, or an elevator structure. The loan is made by a lending institution, such as a mortgage company, bank, or savings and loan association, and is insured by HUD's Federal Housing Administration (FHA). Most of the features of Section 234(c) mortgage insurance are the same as those governing HUD's basic FHA mortgage insurance program, Mortgage Insurance for One- to Four-Family Homes (Section 203(b)). For example, downpayment requirements can be low--3 percent or less--because FHA insurance allows homebuyers to finance about 97 percent of the home's cost through their mortgage. In addition, some closing costs can be financed, reducing up-front costs. And FHA limits some fees that lenders charge�for example, the loan origination charge. Finally, FHA sets limits on the size of the mortgage loan that vary with location and the number of units being purchased.

However, Section 234(c) does have some additional, unique restrictions. If the apartment is in a building that was converted from rental housing, no insurance may be provided under Section 234(c) unless: (1) the conversion occurred more than one year before the application for insurance; (2) the potential buyer or co-buyer was a tenant of that rental housing; or (3) the conversion of the property is sponsored by a tenant's organization that represents a majority of the households in the project. Eighty percent of FHA-insured mortgages in the project must be made to owner-occupants.

Developers may obtain FHA-insured mortgages to finance the construction or rehabilitation of housing projects that they intend to sell as individual condominium units under HUD's Section 234(d) program.

Eligible Grantees:
Most FHA-approved lending institutions can make Section 234(c) loans through Direct Endorsement, which authorizes them to consider mortgage insurance applications without submitting paperwork to HUD.

Eligible Customers:
Any creditworthy potential owner-occupant who meets FHA underwriting criteria and will make the condominium unit their principal residence is eligible for a mortgage insured under this program.

Application:
Applications must be submitted to the local HUD Field Office through a FHA-approved lending institution. HUD's Website offers an interactive directory of approved lenders.

Technical Guidance:
This program is authorized under Section 234(c) of the National Housing Act (12 U.S.C. 1715y[c]). Program regulations are at 24 CFR 234, Subpart A. These regulations, as well as handbooks, notices, and letters relevant to this program, are available through HUDCLIPS (http://www.hud.gov/hudclips). Section 234(c) is administered by the Single-Family Development Division in HUD's Office of Housing-Federal Housing Administration.

For More Information:
See HUD's website to learn more about this program, or ask the Director of Single-Family Programs in your local HUD Field Office. A booklet, Questions about Condominiums, document 365-H(7), is available by mail from HUD or through the toll-free FHA Mortgage Hotline, 1-800-CALLFHA. Homebuyers can also learn more by contacting a HUD-approved lender for a searchable listing of approved lenders nationwide or a HUD-approved housing counseling agency (http://www.hudhcc.org).