The guidance in this FAQ is effective for case numbers assigned on or after October 15, 2019
Reserve Studies are not automatically required for project approval with the exception of non-gut and gut rehabilitation conversions. To demonstrate Financial Stability, FHA requires ALL Condominium Projects to have financial documents that itemize and address income and expenditures that are sufficient and pertinent to the Condominium Project including:
- an operating income that demonstrates a stable income stream over the past two years with decreases of no higher than 15 percent;
- ability to cover the cost of insurance coverage and deductibles;
- a reserve account for capital expenditures and deferred maintenance that is funded with at least 10 percent of the aggregate monthly Unit assessments, unless a lower amount is deemed sufficient based upon an acceptable reserve study;
- evidence that the budget provides for the periodic funding to maintain the reserve account balance of at least 10 percent of the aggregate monthly Unit assessments, unless a lower amount is deemed sufficient based upon an acceptable reserve study;
- evidence that no more than 15 percent of the total Units are Units in Arrears (does not include late fees or other administrative expenses); and
- financial records that are consistent with the application package, including special assessments, loans, or other financial variations.
- be 36 months old or less;
- include a site visit;
- demonstrate that the Condominium Project has adequate funded reserves that provide financial protection for the Condominium Project equivalent to the reserve requirements;
- demonstrate that the Condominium Project’s funded reserves meet or exceed the recommendations included in the reserve study; and
- be prepared by an independent third party that has demonstrated knowledge of, and experience completing, reserve studies.
- Handbook 4000.1 II.C.2.c.vi. available at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh
- The FHA Condominium Mortgage Insurance page at: https://www.hud.gov/program_offices/housing/sfh/ins/sfh_ins_condominiums
- To search for approved condominiums please visit: https://entp.hud.gov/idapp/html/condlook.cfm