What Type of Home Can I Buy With an FHA Loan?

Reader question: “We will probably be using the Federal Housing Administration loan program to buy a house later this year. Some of the houses in our area are older, historic type homes. There are also many different types of condos, townhouses and attached residences. Some new properties as well. We haven’t really settled on a type of house yet as we are trying to keep our options open. My question is, what types of homes can I buy with an FHA loan in 2014?”

There are many types of homes that are eligible for the FHA program. This includes condominiums as well. There is a common misconception that the Federal Housing Administration is ultra-picky about the kinds of homes you can buy with FHA financing. But that’s not exactly true. In fact, the bar is set pretty low.

Basically, if the structure is sound and all of attached systems work properly (plumbing, heating, electricity, septic, etc.), then it’s probably an eligible property. The health and safety of the homeowner is FHA’s primary concern.

HUD Says What Type of Home You Can Buy With an FHA Loan

This program is managed by the Department of Housing and Urban Development (HUD). They establish all of the rules for FHA loans, including what types of homes can be purchased through the program. So that’s where you must begin your research.

Property guidelines can be found in HUD Handbook 4150.2, which is entitled Valuation Analysis for Single Family One- to Four- Unit Dwellings. Chapter 3 of this handbook, “Property Analysis,” serves as a checklist for HUD-approved appraisers when they are inspecting and evaluating houses. Among other things, this chapter explains what types of homes can be purchased with an FHA-insured loan.

Chapter 3 of the handbook is only 21 pages long, so you can “digest” it pretty easily. But I’ll save you some time. Here is what it says about the different types of homes you can buy with an FHA loan:

“These minimum requirements for existing housing apply to existing buildings and to the sites on which they are located. The buildings may be detached, semidetached, multiplex, row houses, or individual condominium units.”

This handbook also explains the minimum property requirements that must be evaluated during the appraisal / inspection process. HUD is mostly concerned with the overall condition and safety aspects of the home. The bottom line: Most properties that are well built and in decent condition will check all of the boxes.

There are some additional guidelines for condos. HUD has a list of approved condos and condominium projects. If you want to buy a condo using an FHA loan, it has to be on that list. You can search their database by location, condo name, etc. Just Google it to find it on the HUD.gov website.

Hazardous Conditions Need Not Apply

As mentioned above, HUD is mainly concerned with the healthy and safety of the home buyer. Hazards, and potential hazards, can raise a red flag during the appraisal process. If they can be resolved and re-inspected, the loan can move forward. If they cannot be fixed for whatever reason, these types of issues can be a deal breaker.

Anything that might pose a health and safety risk to the homeowner is probably going to get flagged. This can be anything from pollution and contamination, to structural defects like a bad roof or foundation cracks.

Hazards aside, you can buy several types of homes with an FHA loan. These include regular detached homes, row houses, condos, semi-detached, and multiplex / multifamily units. Check out the HUD handbook mentioned earlier for more details.

Lastly, I should mention fixer-uppers. If the home needs major repair work in order to be livable, such as a new roof or foundation repairs, it’s probably not eligible for the HUD 203(b) loan program. But there is another program that is specifically designed for these types of properties. It’s called the FHA 203(k) Rehab Mortgage Insurance program, commonly referred to as a “rehab loan.” Note the difference between the ‘b’ and the ‘k’ within the titles. If you’re planning to buy a fixer-upper, you should look into the 203(k) option as well.

Disclaimer: This article answers the question, What types of homes can I buy with an FHA loan? This article is based on information contained within HUD Handbook 4150.2 and other official sources. This information has been provided for reference purposes and does not constitute financial advice. To learn more about this government-backed lending program, you can refer to the HUD.gov website.