In February 2010, FHA ended its policy that allowed buyers to request one-off approvals for individual condo units within a condominium project that was not FHA-approved.

This policy, called a “spot” condo approval, allowed thousands of condo units to be purchased, even though they were within complexes that had been removed from HUD’s approved list, or were never FHA approved in the first place.

Now, these FHA condo one-off “spot” approvals may be coming back, after 4 years locked up in FHA’s closet.

What does it mean?

According to a recent Inman news article, policymakers within FHA are studying the possible effects if spot approvals were re-introduced. Heavy hitters within the industry like the National Association of Realtors® are pushing for changes with FHA’s condo approval rules.

For the last 4 years, buyers and sellers have been out of luck if the complex was not FHA-approved. It meant a lot smaller buyer pool for sellers, forcing them to lower prices until they found a buyer who didn’t need an FHA loan.

Some condo markets like Los Angeles, California and New York, New York (the red and blue lines above) appeared to be on the road to recovery, until the FHA changes in 2010 contributed to another slide.

And the changes weren’t good news for buyers either. A non-approved condo meant a limited number of eligible properties for condo shoppers who needed an FHA loan.

So how many condo projects are FHA-eligible today?

Not many. HUD states only about 10,000 of the nation’s 144,000 condo projects are FHA-approved, according to a recent Washington Post article.

FHA removed most condo complexes from its approved list in December 2010. Any condo that went through the process prior to October 2008 was kicked off the list and forced to re-apply. Unfortunately, FHA approval is a time-consuming and costly process that many HOAs simply didn’t want to deal with.

Scrolling through FHA’s approved condo list, choosing just about any state, it becomes evident that most condo complexes have expired approvals. No one who needs an FHA loan can buy within any of these projects.

So, needless to say, re-introducing FHA’s spot approval program could help condo buyers tremendously.

As it stands, condo buyers have to be approved for conventional financing, usually requiring five to 10 percent down and great credit scores. If they need FHA, they are forced to look at single-family homes, which are generally out of a condo buyer’s price range.

Many buyers keep looking until they find an FHA-approved condo, or simply give up. Spot approvals would give them a third, better option.

When will FHA re-introduce condo spot approvals?

No one at FHA is saying a word about when spot approvals will be rolled out again, or whether it’s a sure thing.

One thing is certain, however: spot approvals will require a more stringent approval process than they did pre-2010. Back then, an approval required a quick questionnaire that could be completed within minutes by someone at the HOA.

To limit fraud, any spot approval process approved by FHA would be water-tight, meaning a more involved process.

That said, any spot approval allowance would be better than nothing. If FHA once again allows a way for buyers to buy in any condo complex, it will open up a world of possibilities for today’s home buyers.