Are condos in Madison hard to buy with an FHA loan?
Rob Miller explains why buying a condo in Madison, WI with an FHA loan can be tricky, and how to navigate FHA condo approvals.
Rob Miller, Branch Manager at MadCity Home Loans, answers one of the most common qualification questions we get from Wisconsin buyers.
Are condos in Madison hard to buy with an FHA loan?
If you are looking at buying a condo in the Madison area using an FHA loan, I need to be upfront with you: it can be a frustrating process if you don't have a lender who knows exactly what they are doing.
The short answer is yes, it is more difficult than buying a single-family home, but it is absolutely possible.
The FHA Condo Approval Problem
When you buy a single-family home with an FHA loan, the FHA only cares about the house you are buying. But when you buy a condo, you are buying into a shared building. The FHA views this as higher risk, so they require the entire condo association to be "FHA Approved."
This means the condo association must meet strict financial and structural guidelines, such as:
- At least 50% of the units must be owner-occupied (not rentals).
- No more than 15% of the units can be behind on their HOA dues.
- The HOA must have adequate reserve funds set aside for major repairs (like a new roof).
- Commercial space in the building cannot exceed 35% of the total floor area.
The Reality in Madison
Here is the catch: many condo associations in Madison and Dane County simply do not bother to keep their FHA approval active because the paperwork is tedious for the property managers.
If you fall in love with a condo, write an offer, and then your lender discovers the building isn't FHA approved, your deal will fall apart.
How We Solve This at MadCity Home Loans
We attack this problem from two angles:
- Single-Unit Approvals (SUA): If a building isn't on the master FHA approved list, we can often request a "Single-Unit Approval" just for the unit you want to buy. This takes extra work from our underwriting team, but we do it all the time to save deals.
- Conventional Alternatives: Often, the best solution is to pivot. We offer Conventional loans that require as little as 3% down (which is actually less than FHA's 3.5%). Conventional condo rules are significantly less strict than FHA rules, and this often bypasses the entire headache.
Before you start touring condos, talk to our team so we can set you up with the right financing strategy from day one.
Related Guide: Dive deeper into the specifics of buying a condo in our Complete Guide to Buying a Condo in Madison.