Condo Mortgage Rules: FHA Approval, Non-Warrantable Buildings, and Condotels
Updated 17 April 2026
The financing reality most buyers discover too late
You can have a perfect credit score, 20% down payment, and a solid income, and still be denied a mortgage on a specific condo. The issue is not you. It is the building. Condos face financing hurdles that single-family homes do not, and half the buildings people fall in love with online are ineligible for conventional or FHA loans.
The Condo Questionnaire
Before issuing a condo mortgage, your lender will require the HOA to complete a condo questionnaire -- a document asking about owner-occupancy ratio, investor concentration, reserve funding, pending litigation, and building condition. The HOA typically charges $150 to $500 to complete it.
If the questionnaire reveals problems (low owner-occupancy, pending litigation, under-funded reserves), the lender may deny the loan even if your personal application is strong. This is why experienced buyers request HOA documents before making an offer, not during underwriting when it is too late.
FHA Approved Condo List
FHA (Federal Housing Administration) loans require the condo project to be approved by HUD. Approval requires:
| Requirement | Standard | Notes |
|---|---|---|
| Owner-occupancy | At least 50% | At least half the units must be owner-occupied |
| Single-entity ownership | No more than 10% | One investor cannot own more than 10% of units |
| Reserve funding | At least 10% of annual budget | Must be in a dedicated reserve account |
| Commercial space | Under 35% of total area | Limited retail or commercial in the building |
| Pending litigation | None material | Active lawsuits against HOA or developer can disqualify |
| Approval validity | 3 years | Must be renewed every 3 years -- check expiration date |
| FHA units already in building | Under 50% | Cannot be FHA-heavy concentration |
To check if a specific building is FHA-approved, visit HUD's searchable Condo Approval database (search "HUD approved condominium" to find the official tool). Search by ZIP code or project name. Confirm the status shows "Approved" and the expiration date is in the future.
Non-Warrantable Condos
A "warrantable" condo meets Fannie Mae and Freddie Mac guidelines for conventional financing. A "non-warrantable" condo does not. Most buyers never know this term until their loan is denied 3 weeks before closing.
Investor-owned > 50%
If more than half the units are rented out, the building fails warrantability for conventional loans.
Single entity owns > 10%
One investor owning 11+ units in a 100-unit building disqualifies the whole project.
Active material litigation
A lawsuit against the HOA or developer freezes conventional and FHA financing.
Commercial space > 25%
A building that is mostly hotel or retail with a small residential component is typically ineligible.
Inadequate reserves
Less than 10% of the annual budget in reserves can trigger non-warrantable status.
New project < 90% sold
A newly developed condo project that has not sold 90% of units yet may be ineligible.
Condotels: Almost Never Financeable
A condotel is a condo within a hotel complex, typically with hotel branding (Marriott, Hilton, Four Seasons, etc.) and a mandatory or optional rental pool program that allows the unit to be rented to hotel guests when you are not there. Popular in beach towns, ski resorts, and Las Vegas.
Financing condotels is extremely difficult because:
- Fannie Mae and Freddie Mac will not back condotel loans
- FHA will not approve condotel projects
- VA will not guarantee condotel loans
- Most conventional lenders will not lend on condotels
If you are determined to buy a condotel, you need a portfolio lender or hard money lender offering non-QM financing, with down payments of 30 to 40% and interest rates significantly above conventional rates.
Workarounds for Non-Warrantable Condos
Portfolio loans
Banks that keep loans on their own books (rather than selling to Fannie/Freddie) can lend on non-warrantable condos. Typically 20 to 30% down, 0.25 to 0.75% higher rate than conventional.
Non-QM loans
Non-qualified mortgage lenders have more flexible guidelines. Rates are 1 to 2% higher. Useful for investors who cannot use conventional financing.
DSCR loans
Debt service coverage ratio loans for investors. The loan is based on the property's rental income, not your personal income. Useful for non-warrantable investment condos.
Larger down payment
Some conventional lenders will make exceptions for strong borrowers with 30 to 40% down even on borderline warrantable buildings.
All-cash purchase
Eliminates the lender review entirely. Relevant for investors or retirees with significant liquid assets.
VA Condo Approval
VA loans have their own separate condo approval list, maintained by the VA (not HUD). A building can be FHA-approved but not VA-approved, or VA-approved but not FHA-approved. Veterans using VA home loan benefits must confirm that the specific condo project is on the VA-approved list before making an offer. The VA's approval criteria are similar to FHA but managed separately and have historically had fewer approved projects. The VA has expanded its approval process in recent years to make condo access easier for veterans.
Also see: conventionalloanvsfha.com for the full comparison of FHA vs conventional loan trade-offs.