FHA Condo Approval Process: Complete Board Guide 2026

When we started building BoardStack, one of the most common compliance problems boards described was getting caught off guard by an FHA approval request at closing. A buyer’s deal falls through because the project is not on HUD’s approved list, or because the delinquency ratio quietly crept above 15%, and nobody on the board noticed until a lender rejected the loan. The board then scrambles to collect documentation, the buyer’s rate lock expires, and the sale collapses.

FHA approval is not a one-time filing. It is a set of ongoing ratios that the board must keep inside tolerance continuously. This guide explains how both approval pathways work, what the specific thresholds are, and how boards can maintain compliance without waiting for a closing to expose a problem.

Project approval versus single-unit approval

FHA financing for condominiums runs through two separate pathways, and boards need to understand both because they affect different constituencies.

Project approval puts the entire condominium on HUD’s approved list. Any buyer purchasing any unit in the project can use FHA financing by referencing the project’s approval ID. The approval runs for three years, at which point the board or a lender must submit a recertification package. Project approval benefits every unit owner in the building because it makes FHA loans routinely available to buyers.

Single-unit approval, formalized in Mortgagee Letter 2019-01 and effective October 15, 2019, allows a single unit to receive FHA financing even when the project is not on the approved list. The buyer’s lender performs the review and documents the findings in the loan file. No HUD submission is required. The caveat is that the underlying project must still satisfy most of the same eligibility criteria that project approval requires. Single-unit approval is not a workaround for a project that fails the delinquency test or the owner-occupancy ratio. It is a streamlined review path for projects that meet the substance of the requirements but have not pursued the administrative process of project approval.

For condo associations that want FHA financing to be readily available to buyers, project approval is the cleaner path. Single-unit approval requires a lender willing to perform the underwriting, and some lenders decline to offer it.

The eligibility criteria in detail

FHA applies a consistent set of criteria to both project approval and single-unit approval. Meeting all of them is required. Missing one threshold blocks approval regardless of how well the project performs on the others.

Owner-occupancy ratio: 50% minimum

FHA requires that at least 50% of units in the project be owner-occupied. A unit counts as owner-occupied if it is a primary or secondary residence of the unit owner. Investor-owned rental units reduce the ratio. Projects where owners purchased units purely as rental investments often fall below 50%, and FHA financing becomes unavailable to buyers regardless of the project’s physical condition or financial health.

Boards should track occupancy status using a combination of deed records, homestead exemption filings, and lease registration if the association requires it. Investor owners who convert a unit from rental to primary occupancy improve the ratio. Boards that monitor this quarterly rather than annually catch drift before it becomes a disqualifying problem.

Reserve allocation: 10% of annual assessments

FHA requires that the association budget at least 10% of total annual assessment income for reserves. This is a funding flow requirement, not a balance requirement. If the community collects $300,000 per year in assessments, at least $30,000 must be budgeted for reserves.

This threshold is lower than what most reserve studies recommend for communities with significant capital needs, but it is the minimum required to maintain FHA eligibility. Associations that waive reserve contributions through member vote, a practice some state laws permit, risk falling below this threshold and losing FHA eligibility.

Boards building the annual budget should calculate the 10% threshold explicitly and document it in the board resolution adopting the budget.

Delinquency ratio: 15% maximum

A project fails the FHA delinquency test if more than 15% of total units have owners who are 60 or more days past due on assessment payments. A 100-unit building can have no more than 15 units in the 60-day delinquent bucket. The 16th delinquent unit pushes the ratio above the threshold.

This requirement creates a direct link between the board’s assessment collection practices and FHA eligibility. Boards that defer collection action, allow chronic delinquencies to linger, or do not enforce the collection policy in the governing documents are making units in the building ineligible for FHA financing. That affects resale value for every owner, not just the delinquent ones.

Effective collection practices include 30-day courtesy notices, 60-day demand letters with late fee accrual, referral to collection counsel at or before 90 days, and lien filing to protect the association’s position. Boards should review the delinquency aging report monthly.

Commercial space: 35% maximum

No more than 35% of the project’s total floor area may be commercial or non-residential use. This catches mixed-use projects where retail, office, or hospitality uses occupy a substantial portion of the building. If the ground floor of a 200-unit building has 40% of total square footage dedicated to retail and restaurant tenants, the project is ineligible for FHA approval regardless of how well the residential floors are managed.

Boards in mixed-use buildings should calculate this ratio from the recorded floor plans or the condominium declaration, which typically specifies commercial unit boundaries. The calculation is floor area, not unit count.

Insurance requirements

FHA requires four types of insurance coverage:

• Hazard insurance at 100% of the insurable replacement cost of the buildings, not fair market value or assessed value. Boards that purchase coverage based on purchase price rather than replacement cost may be underinsured and out of compliance.
• General liability insurance in an amount adequate for the size of the project and the nature of common area use. FHA does not specify a dollar floor, but most lenders expect at least $1 million per occurrence.
• Flood insurance for any building in a FEMA-designated Special Flood Hazard Area. Flood coverage must equal the lesser of the outstanding mortgage balances, the maximum available under NFIP ($250,000 per building), or 100% of replacement cost.
• Fidelity (crime) insurance for projects with 10 or more units, covering the association against dishonest acts by directors, officers, employees, and management company personnel. Coverage must equal at least three months of assessments plus the total reserve fund balance.

Boards should audit insurance certificates at renewal, not just at closing. A lapsed fidelity policy or a hazard policy that dropped below replacement cost mid-year creates an approval gap.

Pending litigation

Active litigation involving the association can disqualify a project. FHA reviewers look at the nature of the suit. Cases that allege safety defects, structural failures, or habitability problems are typically disqualifying. Routine collection actions, small claims, and minor slip-and-fall claims with adequate insurance coverage may be acceptable depending on lender review.

Boards should disclose all pending litigation in any FHA approval package and let the lender determine whether a specific case is disqualifying. Omitting litigation from the disclosure creates legal exposure for the board and voids the approval if discovered later.

FHA requirements checklist

DELRAP and HRAP: how approval is processed

Most project approvals today run through DELRAP (Direct Endorsement Lender Review and Approval Process). A lender that holds HUD’s Direct Endorsement authority and has obtained DELRAP approval can review the project file and issue project approval without submitting documents to HUD. The lender’s underwriter signs off and the approval is entered in the system. DELRAP is faster and is the standard path for initial approval and recertification.

HRAP (HUD Review and Approval Process) is the original pathway where the full project package is submitted directly to HUD for review. HRAP is typically used when the lender lacks DELRAP authority, when the project has characteristics that the lender believes require HUD judgment, or when an association wants to seek approval outside of a specific purchase transaction.

For single-unit approvals, the process is always lender-conducted. The lender underwrites the individual unit using a checklist approach, documents the findings, and funds the loan if eligible. There is no HRAP path for single-unit approval.

Step-by-step: how a board pursues project approval

Step 1: Confirm basic eligibility before engaging a lender. Calculate owner-occupancy ratio, review the most recent monthly delinquency aging report against the 60-day threshold, confirm the annual budget allocates at least 10% of assessments to reserves, measure commercial square footage against total floor area, and pull current insurance certificates to verify all four required coverage types are in force. Fix any deficiency before proceeding.

Step 2: Assemble the project documentation package. The core documents are the recorded condominium declaration and bylaws, current articles of incorporation and good-standing certificate from the state, the most recent two years of audited financial statements or CPA-reviewed financials, the current year budget, the current delinquency report, a statement of reserve balance and annual allocation, a statement of total units and owner-occupied units, all insurance certificates, and a litigation disclosure signed by the board.

Step 3: Engage a lender with DELRAP authority. If a specific buyer is involved, the buyer’s lender will typically perform the DELRAP review. If the board wants to seek approval proactively and independently of a pending sale, identify a local lender with DELRAP authority and request a project review. Some lenders offer this service; others only review projects in connection with active loan applications.

Step 4: Respond to underwriter questions. The DELRAP underwriter reviews the package and may request additional documentation: clarification on litigation matters, updated insurance certificates, corrected financial statements, or additional owner-occupancy evidence. Boards that maintain organized records respond faster and avoid delays.

Step 5: Receive approval and record the approval ID. Once approved, the project receives an FHA approval ID and appears in HUD’s condo lookup database. Record the approval expiration date. Set a calendar reminder to begin recertification 90 days before expiration.

Step 6: Recertify before expiration. Three years from the initial approval date, the board must submit a recertification package. Recertification through DELRAP uses the same document set as initial approval. The critical items to update are the current financials, current delinquency report, current insurance certificates, and any changes in commercial space, owner-occupancy, or litigation status.

What boards should monitor continuously

FHA approval is not a snapshot. The ratios that determine eligibility change month by month as owners fall behind on payments, investors purchase units, and insurance policies renew. Boards that check these numbers only when a closing forces the issue will periodically find themselves out of compliance and unable to remedy the deficiency fast enough to save a sale.

The delinquency ratio is the most volatile. A community with 60 units needs only 10 owners to hit 60-day delinquency to breach the 15% threshold. Monthly review of the aging report is not excessive for a community that wants FHA eligibility.

Owner-occupancy changes more slowly but is harder to recover. An investor buying five units in a 60-unit building drops owner-occupancy from 85% to 77%. Four more investor purchases later, the building is at 72%. The slide happens gradually but recovering it requires individual investor owners to change their status or units to sell to owner-occupants. Boards that track this quarterly and understand the trend have time to act.

The 10% reserve allocation is set annually at budget time. Boards that have historically waived reserves or kept contributions artificially low may find that raising the contribution to meet the 10% threshold requires a larger assessment increase than homeowners expected. Building toward it gradually, using the annual budget cycle, is easier than correcting a large gap all at once.

How BoardStack supports FHA eligibility tracking

We built BoardStack because boards managing these ratios through spreadsheets and disconnected tools consistently miss the drift until a closing exposes it. BoardStack tracks delinquency aging in real time against the 60-day threshold, shows owner-occupancy status by unit using data the board maintains in the system, flags when the annual budget allocation falls below 10% of projected assessments, and centralizes insurance certificate storage with renewal reminders.

The delinquency report a lender needs for FHA review is available in one click rather than assembled manually from accounting software that was not designed for this purpose. Boards running monthly reviews in BoardStack are almost always in a position to produce an FHA package within a week of being asked.

FHA approval gives buyers access to financing they might not qualify for through conventional channels. Communities that maintain eligibility consistently attract a broader pool of buyers and support stronger unit values across the association. The compliance work is real, but it is the same work good financial governance requires anyway.

DEFINITION

FHA Project Approval

A HUD determination that a condominium project as a whole meets FHA eligibility criteria. Once approved, any unit in the project can be purchased using an FHA-insured loan without separate single-unit review. Approval is listed in HUD's condo lookup system and expires every three years.

DEFINITION

Single-Unit Approval

An FHA eligibility determination made at the individual unit level rather than the project level. Introduced in October 2019, it allows a buyer in an unapproved condominium project to use FHA financing if both the unit and the project satisfy specific criteria. The buyer's lender performs the review; no HUD submission is required.

DEFINITION

DELRAP

Direct Endorsement Lender Review and Approval Process. An FHA pathway that allows lenders with delegated authority to review and approve condominium projects without submitting the file to HUD. DELRAP approvals are faster than HRAP and represent the majority of project approvals processed today.

DEFINITION

HRAP

HUD Review and Approval Process. The original FHA project approval pathway in which the project application is submitted directly to HUD for review. Now used primarily when a lender lacks DELRAP authority or when the project characteristics require HUD-level review.

DEFINITION

Owner-Occupancy Ratio

The percentage of units in a condominium project that are owner-occupied as primary or secondary residences, rather than investor-owned rentals. FHA requires this ratio to be at least 50% for both project approval and single-unit approval. A high investor ratio often signals rental-dominated communities where FHA financing is unavailable.

DEFINITION

Delinquency Ratio

The percentage of units in an association whose owners are 60 or more days past due on assessment payments. FHA requires this ratio to be 15% or lower. A delinquency ratio above 15% disqualifies the project from FHA approval until collection activity brings the ratio back into compliance.

DEFINITION

Recertification

The process of renewing FHA project approval before it expires. FHA project approvals last three years. Boards submit updated documentation confirming that the project continues to meet all FHA eligibility criteria. Recertification through DELRAP is handled by a lender; HRAP recertifications go directly to HUD.

DEFINITION

Fidelity Insurance

Insurance that covers an association against financial loss caused by dishonest acts of directors, officers, employees, or management company personnel. FHA requires fidelity insurance for projects with 10 or more units, with coverage equal to at least three months of assessments plus reserve fund balances. Also called crime insurance or employee dishonesty coverage.