FHA Cash-Out Approval Requirements for a Condo Unit

The Quick Read: A condo cash-out under FHA has to clear two sets of tests, the borrower’s and the building’s. The borrower must have owned and lived in the unit as a principal residence for 12 months before the case number, and the new loan generally tops out at 80% of the appraised value. The unit must also sit in an FHA-approved project or qualify for single-unit approval. A strong borrower can still stall if the building fails.

What Does “Approved Condo” Mean for a Cash-Out?

An approved condo is a unit in a project that FHA has already reviewed and cleared, or a unit that qualifies for a one-off review. Either way, the approval covers the building’s health, not just your credit.

HUD’s FHA Condominiums page says a project must meet the approval standards in HUD Handbook 4000.1. Those standards cover insurance coverage, financial condition, nature of title, pending legal action, physical condition, and other factors affecting the project’s viability or marketability.

Two routes exist, and the lender decides which applies:

Think of the first route as the building holding a pass, and the second as the unit borrowing one for the day.

How Is the Loan Underwritten, Step by Step?

The deal works through five checkpoints: borrower eligibility, condo status, appraisal, loan sizing, and disclosures. Each one can stop the loan. Knowing the order helps you gather documents before they are requested.

1. Borrower eligibility. Cash-out is for an owner-occupied principal residence. Under the FHA cash-out program the home must be owned and occupied for 12 months before the case number is assigned. A second home or rental unit does not qualify. Occupancy decides the leverage, and for this program that means a primary residence only.

2. Condo status check. The lender searches for the project on the FHA-approved list. HUD’s FHA Connection help explains that a project must be approved before FHA insurance applications can be processed for its units, and that an approved project carries a seven-character Condo ID. If the project is not on the list, the lender can look at single-unit approval instead.

3. Appraisal. The appraised value sets the loan-to-value test. HUD has updated its Handbook so appraisers no longer verify whether a project is on the approved list. That job belongs to the lender.

4. Loan sizing. The new loan must fit within 80% of the adjusted value. It includes the financed upfront premium of 1.75% and any liens that stay on the home. County loan limits also apply, and they change every year.

5. Disclosures. This is a consumer mortgage, so the Loan Estimate and Closing Disclosure rules apply. The CFPB’s guide to the Loan Estimate and Closing Disclosure explains when each form is delivered, and the exact timing varies by file and lender.

For the program overview, see Lendmire’s FHA cash-out refinance program.

What Does the Borrower Have to Show?

The borrower side looks like any FHA cash-out, with condo costs folded in. Across the wholesale programs Lendmire places files with, the base profile starts at a 580 decision score. Ratios start at 31/43 for housing and total debt with no compensating factors. Documented compensating factors can reach 40/50 at the top tier, and the automated finding governs most files. All of this is subject to lender guidelines and full file review.

Two details matter for condos:

• Dues count. HOA dues are a separate monthly cost, and underwriting counts them as part of housing expense. That pushes the housing ratio up compared with a similar single-family home.
• Mortgage insurance applies to the whole new loan. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV it lasts for the term. At or below 90% it ends after eleven years. Because cash-out tops out at 80%, the shorter schedule is the one that normally applies.

Recent forbearance can also change the path. HUD’s May 2024 Handbook update changed the manual-underwriting trigger for borrowers who have made fewer than three consecutive housing payments since completing a forbearance plan. Manual underwriting means a tighter read of the file.

Why Is the Cap 80%?

HUD cut the maximum cash-out LTV from 85% to 80% for case numbers assigned on or after September 1, 2019. The HUD press release says the change reduces risk and protects borrowers’ equity. It also lines FHA up with the Fannie Mae and Freddie Mac cash-out limit. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

That means any older advice about taking out 85% is outdated. On a condo it also leaves little room, since the new balance has to cover your old loan, the financed premium and any liens that remain.

What Does the Building Have to Pass?

The building is where condo files most often fail. The tests look at the association’s health, not your credit score. HUD’s page lists insurance coverage, financial condition, title, pending legal action and physical condition. Owner-occupancy and FHA concentration also matter.

On the single-unit path, HUD says the project must be complete, ready for occupancy and have at least five units. It must also pass a subset of the approval requirements: FHA insurance concentration, owner-occupancy percentage and financial condition.

The exact percentages are where guidance varies. The Federal Register rule on condominium project approval sets ranges, with exact figures set by HUD notice. HUD can also suspend new FHA case numbers in projects over the maximum. Beyond that, the thresholds in force today should be confirmed with your lender.

Project approval itself comes through one of two reviews. HRAP is a review by HUD staff. DELRAP is a review by a qualified Direct Endorsement lender.

Where Does the General Rule Break?

Most of the surprises sit in the edge cases. These are the ones worth knowing before you apply.

• Approval can lapse. Project approval has an expiration, and secondary sources describe a three-year window. A building approved when you bought may not be on the list when you refinance. Status is checked at the time of the new transaction.
• Single-unit approval is unit-specific. Each unit needs its own application. Only a lender authorized for FHA can submit it, not the HOA or a real estate agent.
• A case number is not an approval. Case-number assignment is administrative. The project and unit must still meet the criteria.
• Not listed does not mean ineligible. A building missing from the list may still qualify through single-unit approval, if it fits the criteria.
• Small projects. Under the single-unit path, a project needs at least five units. Smaller buildings are largely outside it.
• Investment or second-home condos. Not eligible for this program. Occupancy decides the leverage.
• Rule changes. The single-unit framework can change over time, so ask your lender which version applies to your file.

What Does This Look Like in Practice?

Picture a borrower who has lived in a condo for several years and wants to pull equity out. Their credit and income look fine, and the appraisal supports the 80% cap.

The lender then checks the building. If the project is on the approved list, the file continues on the approved-project path. If it is not listed, the lender asks whether the building qualifies for single-unit approval and requests HOA documents. The Handbook lists a condominium questionnaire, form HUD-9991, among the documents. The HOA usually supplies financial and insurance details.

If the building fails, the borrower has four realistic options:

Pulling out a smaller amount does not change the project tests. The building either passes or it does not.

For related reading, Lendmire’s piece Can a Condo Owner Get an FHA Cash-Out Without Project Approval? covers the single-unit path in more depth. Its article on FHA versus conventional cash-out for a condo with project approval issues covers the alternative.

What Will It Cost?

Cash-out replaces your first mortgage with a larger balance, so the monthly payment usually rises. The new loan carries FHA mortgage insurance on the full amount, and HOA dues remain a separate cost.

Closing costs vary by file. The CFPB’s analysis of closing costs finds origination fees are the largest disclosed category, followed by title fees. Fees under “services you can shop for” can rise at closing, generally by no more than 10% of the final Loan Estimate, per the CFPB’s Your Home Loan Toolkit.

A project or unit review also adds documents, which means more steps for the HOA. Ask early who will request them.

Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

Key Terms Defined

Single-unit approval (SUA): A one-time FHA review that lets a lender finance one unit in a building that is not on the approved list.

HRAP: The project approval process in which HUD staff review the building.

DELRAP: The process in which a qualified Direct Endorsement lender reviews the project.

Condo ID: The seven-character number FHA assigns to an approved project.

Case number: The FHA identifier assigned to a loan file. It is administrative and does not prove the condo is approved.

LTV: Loan-to-value, the new loan balance divided by the appraised value.

Financed upfront premium: The 1.75% FHA mortgage insurance charge added to the loan balance rather than paid in cash.

If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. All program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

For the program’s current guidelines, see FHA loan programs.

References

1. HUD – FHA Condominiums

2. HUD FHA Connection condo help

3. CFPB – Guide to Loan Estimate and Closing Disclosure

4. HUD’s May 2024 Handbook update

5. HUD Press Release 19-114

6. Federal Register – Project Approval for Single-Family Condominiums

7. CFPB – RFI on closing costs

8. Your Home Loan Toolkit