FHA LEASING REFRESHER

FHA-insured financing may be used to purchase or refinance a condominium unit in a project where the legal documents contain provisions which restrict a unit owner’s ability to lease their unit if the restrictions meet one or more of the following criteria.

  • All leases must be in writing and subject to the declaration and by-laws of the project.
  • The condominium association may request and receive a copy of the sublease or rental agreement.
  • The condominium association may request the name(s) of all tenants including the tenants’ family members who will occupy the unit.
  • Unit owners are prohibited from leasing their units for an initial term of less than 30 days.
  • The condominium association may establish a maximum allowable lease term, e.g. six months, twelve months, etc.
  • The condominium association may establish a maximum number of rental units within the project; however, the percentage of rental units may not exceed the current FHA condominium project owner-occupancy requirement (50%).
  • The condominium association may not require that a prospective tenant be approved by the condominium association and/or its agent(s), including but not limited to meeting creditworthiness standards.

All other FHA requirements and policy guidance addressing restrictions on conveyance remain in effect.

Today, an entire condominium must apply to HUD and be granted FHA approval before a buyer can purchase a unit with a FHA loan or before an existing owner can refinance into a FHA loan, including reverse mortgages.

To summarize, condominium declarations and rules may:

  • Require owners to have written leases and supply the association with copies of such leases;
  • Require leasing owners to provide the association with names of the renters;
  • Require minimum lease terms (30 days or higher);
  • Set forth maximum lease terms;
  • Limit total number of rentals in community (not to exceed 50%)

On the flip side, condominium declarations and rules may not:

  • Allow for leases that are less than 30 days in length (whether by individual owner or mortgagees);
  • Require prospective tenants to be approved by the association

If your condominium declaration or rules contain restrictions contrary to the above, you should consult the association’s legal counsel to discuss amendment of the declaration prior to applying for FHA certification or recertification.

If your condominium declaration or rules contain restrictions contrary to the above, you should consult the association’s legal counsel to discuss amendment of the declaration prior to applying for FHA certification or recertification.

For additional information about the FHA, see our article “FHA Condominium Certifications: The Requirements and Prohibitions”.

By: Elina B. Gilbert