Yes, your condominium association must have FHA approval for you to get a Home Equity Conversion Mortgage (HECM). A HECM is the most common type of reverse mortgage and is insured by the Federal Housing Administration (FHA), a part of the U.S. government. This requirement creates a direct and often frustrating conflict for senior condo owners.
The core problem is rooted in a binding procedural rule from the Department of Housing and Urban Development (HUD), which oversees the FHA. According to HUD Handbook 4000.1, the FHA will not insure a mortgage on an individual condo unit unless the entire condominium project meets its strict financial and operational standards.1 This means your personal eligibility for a HECM is completely dependent on the collective actions and financial health of your condo association, effectively blocking you from a key retirement tool if your association is not approved.
This barrier is significant, as the number of FHA-approved condo projects has plummeted over the last decade. As of 2018, out of more than 41,000 condo projects that had ever been approved by the FHA, only 9,888 remained on the approved list.3 This massive drop severely limits options for seniors who were counting on their home equity to fund their retirement.
Here is what you will learn by reading this guide:
- ✅ The Unbreakable Link: Understand exactly why an FHA-insured HECM is impossible to get without your condo association’s FHA approval and what that means for you.
- 🗺️ Two Paths to Approval: Discover the two distinct methods for getting FHA approval—one for the whole building and a special workaround for just your unit.
- ⚖️ Your Board’s Legal Duty: Learn about the “fiduciary duty” your condo board has and how their failure to seek FHA approval could be harming property values and even lead to legal trouble.
- ❌ Mistakes That Kill a Deal: See the most common, yet avoidable, mistakes that cause condo associations to fail FHA requirements, stopping your HECM application in its tracks.
- 💡 The Back-Up Plan: Find out about an alternative type of reverse mortgage that doesn’t require FHA approval, which could be your solution if your association won’t cooperate.
The Three Key Players: HECM, FHA, and Your Condo Board
To understand this situation, you need to know the three main players and how they interact. Think of it as a three-legged stool. If one leg is weak or missing, the whole thing collapses, and your loan application gets denied.
Player 1: The Home Equity Conversion Mortgage (HECM)
A HECM is a special type of loan for homeowners aged 62 and older.4 It allows you to turn a part of your home’s equity—the value you own free and clear—into cash without having to sell your home or make monthly mortgage payments.6 You still own your home, but you must continue to pay for property taxes, homeowners insurance, and your condo association fees.5
The loan balance grows over time as interest and fees are added.5 The loan is typically paid back when the last borrower sells the home, moves out permanently, or passes away.4 This financial tool is designed to help seniors who are “house-rich but cash-poor” use their home’s value to live more comfortably in retirement.12
Player 2: The Federal Housing Administration (FHA)
The FHA is a government agency that is part of the U.S. Department of Housing and Urban Development (HUD).4 The FHA does not lend money directly. Instead, it provides mortgage insurance to lenders like banks and credit unions.5
This insurance protects the lender from financial loss if the home’s value is less than the loan balance when it’s time to repay.10 Because of this government guarantee, lenders are willing to offer HECMs. Every single HECM loan is insured by the FHA; without this insurance, the HECM program would not exist.6
Player 3: Your Condominium Association Board
Your condo association, run by a board of directors, is responsible for managing the shared property and finances of your entire building or complex.14 They collect fees, maintain common areas, and make sure the community is financially healthy. The board’s decisions directly impact the value and stability of every unit, including yours.
The relationship between these three players is simple but strict: because the FHA (Player 2) insures every HECM (Player 1), it will not take on the financial risk of insuring a loan in a condo project that it deems unstable. The FHA’s judgment of stability is based entirely on the financial health and management of your Condo Association (Player 3).15
Why the FHA Puts Condos Under a Microscope
The FHA has much stricter rules for condos than for single-family homes. This isn’t to make your life difficult; it’s about managing risk. The value of a single-family home depends mostly on that specific property. The value of your individual condo unit, however, is directly tied to the health of the entire project.15
If your condo association is poorly managed, has no money in savings for repairs, or has many owners not paying their dues, the entire building can fall into disrepair. This can cause property values for everyone to drop. If that happens, the FHA could lose a lot of money on the loans it insures within that project.17
To protect its insurance fund, the FHA created a set of rules that a condo association must meet to prove it is a safe investment. This is the FHA approval process. It acts as a stamp of approval, signaling that the community is financially sound and well-managed.16
The Seven Commandments of FHA Condo Approval
For your condo association to get FHA approval, it must meet a strict set of requirements. These rules are the FHA’s way of checking the vital signs of the community’s financial and operational health. If your association fails even one of these, it can’t get approved, and you can’t get a HECM.
- The 50% Owner-Occupancy Rule: At least 50% of the units in the project must be occupied by their owners, not renters.20 The FHA believes that communities with more owners living on-site are more stable and better maintained.17
- The 15% Delinquency Rule: No more than 15% of the total units can be 60 days or more behind on their condo association dues.20 A high number of late payments is a major red flag for financial instability.
- The 10% Reserve Funding Rule: The association’s annual budget must set aside at least 10% of its income into a reserve fund.15 This is a savings account for future major repairs, like replacing the roof or elevators.
- The 10% Single-Owner Rule: In projects with 20 or more units, a single investor or entity cannot own more than 10% of the total units.8 This prevents one person or company from having too much control or creating risk if they decide to sell all their units at once.
- The 35% Commercial Space Limit: The total amount of space used for businesses (like stores or offices) generally cannot exceed 35% of the project’s total area.15 This ensures the building remains primarily a place for people to live.
- The Insurance Mandate: The association must have proper insurance, including hazard insurance for the building, liability insurance, and fidelity insurance to protect against theft or fraud by board members or management.15
- No Unreasonable Sales Restrictions: The association’s legal documents cannot contain rules that make it unfairly difficult for an owner to sell their unit, such as an unrestricted “right of first refusal”.26
Your Roadmap to FHA Approval: Two Paths Forward
If your condo building is not on the FHA’s approved list, you have two potential ways to get the approval needed for your HECM. One path involves the entire community, while the other is a targeted solution just for your loan.
Path 1: Full Project Approval
This is the traditional method where the condo association applies to have the entire project certified by the FHA.22 If successful, every unit in the building becomes eligible for FHA-insured loans, including HECMs, for three years.22 This makes it easier for everyone in the community to sell or refinance.
The association’s board of directors, often with help from a property manager or a specialized consultant, must gather a large number of documents and submit them to HUD for review.29 This process is called the HUD Review and Approval Process (HRAP). It is thorough and can feel overwhelming for a volunteer board, which is why many associations don’t do it.30
Path 2: The Single-Unit Approval (SUA) Workaround
Recognizing that many condo boards were failing to get full approval, the FHA brought back a process in 2019 called Single-Unit Approval (SUA).20 This is a modern version of the old “spot loan” system. It allows a lender to get FHA approval for just one unit for a specific loan transaction, without the entire building having to be certified.29
This is a powerful option for a senior who needs a HECM but lives in a building where the board is unwilling or unable to go through the full approval process. The SUA shifts the paperwork burden from the condo board to the lender.32 The board simply has to provide the necessary information when asked.
However, the condo project must still meet most of the FHA’s core requirements, like the 50% owner-occupancy and 15% delinquency rules.11 There’s also an important restriction: in a building with 10 or more units, no more than 10% of the total units can have FHA loans for an SUA to be approved.20
Decoding the Paperwork: A Deep Dive into HUD Form 9991
Whether your lender is pursuing a Single-Unit Approval or simply verifying the status of an already-approved project, they will use a key document: Form HUD-9991, the FHA Condominium Loan Level/Single-Unit Approval Questionnaire.34 This form is the heart of the approval process for an individual loan. Understanding what it asks for reveals exactly what the FHA cares about.
Here is a breakdown of the most critical sections and why each question matters.
Section 3: Condominium Project Eligibility
This section is the first major hurdle. It collects the vital signs of the condo association’s health.
- 3.a. Occupancy Requirements: This is where the association must report the total number of units and how many are owner-occupied versus non-owner-occupied. The FHA uses this to calculate if the project meets the 50% owner-occupancy rule. If it doesn’t, the application stops here.
- 3.b. Individual Owner Concentration: The form asks if any single person or company owns more than one unit and requires a list. This is to enforce the 10% single-owner rule. Too much concentration of ownership is seen as a risk.8
- 3.d. Units in Arrears: This question asks for the exact number of units that are more than 60 days late on their dues. The lender uses this to verify compliance with the 15% delinquency rule. A high number signals that the association may not have enough cash flow to operate properly.
- 3.e. Insurance Requirements: This asks about the master insurance policy. The FHA needs to know that the building itself is protected. If the master policy doesn’t cover the interior of your unit (“walls-in” coverage), you will be required to get your own separate policy (an HO-6 policy).7
Section 4: Single-Unit Approval
This section is required only for the SUA process and digs even deeper into the association’s stability.
- 4.b. Financial Condition: This is a series of critical yes/no questions.
- “Does the Condominium Association have a reserve account?” This checks for the existence of the required savings account for major repairs.
- “Does the Condominium Association maintain separate accounts for operating and reserve funds?” This is a basic financial control. Mixing these funds is a sign of poor management.
- The form also asks for the dollar amount in the reserve account balance. The lender will compare this to the budget to ensure the 10% reserve funding rule is being met.
- 4.c. Commercial/Non-Residential Space: The association must provide the total square footage of the project and the square footage used for commercial space. This is how the FHA verifies compliance with the 35% commercial space limit.
- 4.d. Additional Insurance Requirements: This section confirms the association has at least $1 million in liability insurance and, importantly, Fidelity Insurance. Fidelity insurance protects the association’s funds from being stolen by board members or a management company, a crucial protection for financial stability.15
- 4.e. Litigation: The form asks, “Is the Condominium Project or Condominium Association subject to any pending Litigation?” If the answer is yes, the loan may be denied. The FHA will not insure a loan in a project that is facing lawsuits related to safety or structural problems, as this creates a massive financial risk.22
Real-World Scenarios: How FHA Approval Plays Out
Abstract rules can be confusing. Let’s look at three common scenarios to see how these requirements impact real people trying to get a HECM or sell their condo.
Scenario 1: The Proactive Board
Eleanor, age 78, has lived in her condo for 25 years and wants a HECM to supplement her retirement income. She discovers her association’s FHA approval expired years ago. She attends a board meeting and explains how the lack of approval hurts her and other seniors, and also lowers property values for everyone by shrinking the pool of potential buyers.1
The board recognizes its fiduciary duty to protect property values and decides to pursue recertification. They hire a company that specializes in FHA approvals to handle the paperwork.
| Board’s Decision | Direct Outcome |
| Hired a consultant to manage the FHA application. | The process was handled professionally and efficiently, reducing the burden on the volunteer board members. |
| Reviewed the budget and confirmed 12% was allocated to reserves. | Easily met the FHA’s 10% reserve funding requirement.15 |
| Noticed the delinquency rate was 16% and started a collections effort. | The rate dropped to 11% within 60 days, falling below the 15% maximum allowed.20 |
| Submitted the full application package to HUD. | The project was approved within 45 days. Eleanor successfully closed on her HECM, and a neighbor sold their unit quickly to a young family using an FHA loan. |
Scenario 2: The Unprepared Association
David, a 65-year-old, needs a HECM to pay for home healthcare services. His condo building has never been FHA-approved. His lender agrees to attempt a Single-Unit Approval (SUA) and sends Form HUD-9991 to the property manager.
After weeks of delay, the manager returns the form with bad news. The information provided reveals that the association is not being managed to FHA standards.
| Association’s Condition | Direct Outcome |
| The owner-occupancy rate is only 47%. | Fails the 50% owner-occupancy requirement. The loan cannot proceed.37 |
| The budget only allocates 5% to the reserve fund to keep monthly dues low. | Fails the 10% reserve funding requirement. This is an automatic denial.3 |
| The board was unaware of these specific FHA requirements. | David’s HECM application is denied. He is blocked from accessing his home equity due to the association’s poor financial planning. |
Scenario 3: The Successful Workaround
Maria, a 72-year-old widow, lives in a large complex where the board has repeatedly refused to seek FHA approval, citing the administrative burden. Maria’s reverse mortgage specialist suggests they try for a Single-Unit Approval (SUA).
The lender sends the required forms to the management company. Although the manager is slow to respond, the information they eventually provide is positive.
| Association’s Condition | Direct Outcome |
| The owner-occupancy rate is 65%. | Exceeds the 50% minimum requirement.11 |
| The delinquency rate is only 8%. | Well below the 15% maximum allowed.33 |
| The reserve fund is healthy and there is no pending litigation. | The project meets all of the FHA’s underlying criteria for stability and financial health. |
| The lender submits the complete SUA package to HUD. | The single unit is approved. Maria successfully gets her HECM line of credit, securing her financial future without the board having to approve the entire project.37 |
The Board’s Legal Duty: More Than Just Mowing the Lawn
Members of a condominium board of directors have what is known as a fiduciary duty. This is a legal obligation to act in the best financial interests of all the homeowners in the community.1 This duty includes making decisions that protect and increase property values.
A growing number of attorneys argue that refusing to seek or maintain FHA approval could be a breach of this fiduciary duty.1 By blocking access to FHA loans and HECMs, a board is actively shrinking the pool of potential buyers, which can suppress property values for everyone.1 This inaction can directly harm owners, especially seniors who are prevented from accessing a vital retirement tool.
A board’s decision to let FHA approval lapse could expose them and the association to lawsuits from owners who claim negligence or even housing discrimination.40 A board does not have the right to decide what kind of mortgage financing is acceptable, especially when that decision has a clear negative financial impact on the residents they are supposed to represent.40
Mistakes to Avoid: The Top 5 FHA Approval Killers
Many condo associations fail to get FHA approval due to simple, avoidable mistakes. Being aware of these common pitfalls can help you understand why your building might not be approved and what needs to be fixed.
- Ignoring the Reserve Fund. The most common failure is not setting aside at least 10% of the budget for reserves. Boards often try to keep monthly dues artificially low, but this starves the savings account needed for major repairs. When a big expense comes up, it can lead to a huge special assessment that owners can’t afford.
- Letting Rentals Get Out of Control. Many boards don’t track the owner-occupancy ratio. When too many owners decide to rent out their units, the ratio can dip below 50% without anyone realizing it, making the entire project ineligible for FHA approval.
- Being Lax on Collecting Dues. Allowing more than 15% of owners to fall over 60 days behind on their payments is a sign of weak financial management. The FHA sees this as a critical indicator that the association cannot meet its financial obligations.
- Having Restrictive Language in Bylaws. Old legal documents sometimes contain clauses that the FHA no longer allows. A common example is a “right of first refusal” that gives the board the power to block a sale for any reason, which unfairly restricts an owner’s ability to sell their property.26
- Forgetting to Recertify. FHA approval is not permanent; it expires every three years.22 Many boards simply forget to renew it. If more than six months pass after the expiration date, the association has to start the entire application process from scratch, which is much more difficult .
The Pros and Cons of Seeking FHA Approval
For a condo board, the decision to pursue FHA approval involves weighing the benefits against the perceived work involved. Understanding both sides can help you make a persuasive case to your board.
| Pros & Cons of FHA Approval |
| PROS: Why Your Board Should Get Approved |
| Bigger Buyer Pool: Approval opens your community to a huge market of buyers who use FHA loans, including most first-time homebuyers.1 More buyers mean more demand. |
| Higher Property Values: With more demand and competition for units, sale prices tend to increase across the entire community, benefiting every single owner.1 |
| Access to HECMs: It is the only way for senior residents (age 62+) to get an FHA-insured reverse mortgage, a critical tool for aging in place.1 |
| A Stamp of Good Management: FHA approval signals to all potential buyers, even those not using FHA loans, that the association is financially stable and well-run . |
| Fulfills Fiduciary Duty: Proactively seeking approval helps the board fulfill its legal duty to protect and enhance the property values of its residents.1 |
| CONS: Why Some Boards Hesitate |
| Administrative Work: The application process requires gathering many legal and financial documents, which can seem like a lot of work for a volunteer board.15 |
| Cost: In the past, getting help from attorneys could be expensive. However, the cost has dropped significantly, and specialized services can often handle the entire process for under $1,000.1 |
| Misconceptions: Some board members falsely believe FHA approval attracts “low-income” residents or that FHA borrowers are more likely to default. Data shows these fears are unfounded.1 |
| Ongoing Compliance: The association must recertify every three years, which requires the board to stay organized and maintain good financial practices continuously.22 |
| Resistance to Change: Some boards may need to increase dues to meet the 10% reserve requirement or enforce rental restrictions, which can be unpopular with some residents. |
The Back-Up Plan: Proprietary Reverse Mortgages
What if your condo association fails to meet FHA standards, or the board simply refuses to cooperate? You may still have one other option: a proprietary reverse mortgage.
These are private loans offered by lenders that are not insured by the FHA.12 Because there is no government insurance, the lender sets its own rules. This means a proprietary reverse mortgage does not require FHA condo approval.2 Lenders will still review the condo project’s health, but their standards are often more flexible.
However, this flexibility comes with important trade-offs.
| HECM vs. Proprietary Reverse Mortgage |
| FHA-Insured HECM |
| Government Insured: Yes, insured by the FHA. This protects you and the lender.13 |
| Condo FHA Approval: Absolutely required.2 |
| Minimum Age: 62.7 |
| Loan Limit: Capped at the FHA’s national limit ($1,209,750 in 2025).7 |
| Consumer Protection: Includes a “non-recourse” feature. Your estate will never owe more than the home’s value, even if the market crashes. The FHA insurance covers any loss.7 |
| Proprietary Reverse Mortgage |
| Government Insured: No, it is a private loan.13 |
| Condo FHA Approval: Not required.2 |
| Minimum Age: Often lower, sometimes as young as 55.43 |
| Loan Limit: Can be much higher, sometimes up to $4 million or more, making it suitable for high-value properties.43 |
| Consumer Protection: Varies by lender. It may not have the non-recourse protection, meaning your estate could be liable if the loan balance exceeds the home’s sale price.7 |
A proprietary reverse mortgage can be a lifeline for seniors in non-FHA-approved condos, especially those with high-value properties. However, the interest rates and fees may be higher, and the consumer protections are not as strong as those with a HECM.44 It is crucial to speak with a trusted financial advisor to weigh the costs and benefits before choosing this option.
Frequently Asked Questions (FAQs)
For Condo Owners
How can I check if my condo is already FHA-approved?
Yes, you can check instantly. Go to the HUD website and use their searchable database of approved condominium projects. You can search by your state, city, or the project’s name.8
My board won’t seek approval. What can I do?
Yes, you still have an option. Ask a HECM lender to attempt a Single-Unit Approval (SUA) for just your unit. This process requires less work from the board than a full project approval.11
Does a Single-Unit Approval (SUA) certify the whole building?
No, it does not. An SUA is only for one specific loan transaction. The approval process must be repeated from the beginning for any other FHA-insured loan in the same building.33
For Condo Board Members
Is our board legally required to get FHA approval?
No, there is no specific law that forces you to. However, attorneys argue that your fiduciary duty to protect property values may create an obligation to pursue it to avoid harming owners financially.1
Will FHA approval increase our association’s legal liability?
No, not directly. The main liability comes from certifying that the information on the application is true. FHA approval does not give HUD any control over how you govern the community.1
How long does the approval process take?
It varies. A full project approval typically takes 30 to 60 days once all documents are submitted. A Single-Unit Approval can sometimes be faster, but it depends on how quickly the association provides the required information.19
For Real Estate & Mortgage Professionals
What’s the most common reason a Single-Unit Approval gets denied?
Yes, there are common reasons. Denials are almost always because the project fails a core FHA rule, most often the 50% owner-occupancy requirement, the 15% delinquency limit, or the 10% reserve funding rule.32
What is the difference between a “warrantable” and an “FHA-approved” condo?
Yes, they are different. “Warrantable” means the condo meets the rules of Fannie Mae and Freddie Mac for conventional loans. “FHA-approved” means it meets the separate, often stricter, rules of HUD for government-insured loans.48