Everyone is talking about 'the new 2026 condo rules.' FHA's have not been amended since 2019
Everyone is talking about 'the new 2026 condo rules.' FHA's have not been amended since 2019
2026-09-19 · South Carolina · Compliance
Two different sets of condominium financing rules are being discussed as though they were one. The conventional rules changed in August 2026. The FHA rules have not changed since 2019.
The regulation
The FHA condominium project approval regulation is 24 CFR § 203.43b, "Eligibility of mortgages on single-family condominium units." Its amendment history in Part 203 shows entries at 2016-12-16 (reserved), 2019-08-15 and 2019-10-15. There is no 2020 through 2026 amendment.1
The governing rule remains the August 15, 2019 final rule, "Project Approval for Single-Family Condominiums," effective October 15, 2019, implemented through Single Family Housing Policy Handbook 4000.1.2
What remains available
Single-Unit Approval continues on its 2019 terms: a unit in a completed, non-FHA-approved project of at least five units, not manufactured housing, meeting a subset of project requirements including FHA concentration, owner-occupancy and financial condition.
Owner-occupancy remains 50% as the default, with a documented exception down to 35% for projects more than twelve months old with under 10% of units in arrears. HUD retains authority to reset owner-occupancy anywhere between 30% and 75%, and FHA concentration between 25% and 75%, by mortgagee letter — and has not exercised it.
The 2025 and 2026 mortgagee letters
None changes condominium project approval. The 2026 letters address beneficial-interest sales, foreclosure bidding, limited 203(k) draws, rescinding a form, trial payment plans, mortgagee approval and quality control, and appraisal field reviews. Condominium submission sources appear on the distribution lists because that is HUD's standard distribution, not because the letters concern project approval.
Why the confusion is costly in South Carolina specifically
The conventional rules did move, and hard. Fannie Mae and Freddie Mac retired Limited and Streamlined project review for loan applications dated on or after August 3, 2026, and the replacement-reserve minimum rises from 10% to 15% on January 4, 2027.
A South Carolina coastal building that just became non-warrantable for conventional financing may still be FHA-approvable. Those are separate regimes with separate paperwork, separate thresholds and separate decision-makers, and a project failing one does not thereby fail the other.
FHA is a meaningful channel in this state. The first-time-buyer and workforce segments around Charleston and Myrtle Beach lean on it, and Single-Unit Approval remains the route for a building whose board will not pursue full project approval — which is a real situation, because project approval is an administrative undertaking an unpaid board has to choose to take on.
The divergence that just opened up
One of the conventional changes makes the two regimes point in opposite directions on the same building.
Fannie Mae eliminated the investor-concentration cap — the rule rendering a project non-warrantable above 50% non-owner-occupied units. FHA's owner-occupancy test, at 50% with a documented exception to 35%, is unchanged.
So a heavily rented South Carolina beach regime may now pass the conventional test and fail the FHA one. Before August 2026 the two tests sat at roughly the same threshold; they no longer do. For Grand Strand and barrier-island buildings with high rental ratios, that is a live distinction rather than a technical one.
What both regimes look at that South Carolina does not require
Both examine reserves and deferred maintenance. Fannie Mae's published position is that the leading causes of an ineligible project status are insufficient master property insurance and critical repairs, including failure to meet state or local inspection requirements.
South Carolina requires no reserve study, no reserve funding, and no structural or milestone inspection for condominium buildings of any age or height. The only bill that would have examined the inspection question merely proposed a study committee, and it never received a hearing.
The practical consequence is that a South Carolina board preparing for either review is assembling a record the state never asked it to create. See the conventional changes in detail, reserve studies, and condo safety inspections.
One more federal date in the same window
Authority to write or renew a National Flood Insurance Program policy expires September 30, 2026 under 42 U.S.C. § 4026 unless Congress acts. FEMA data shows more than 5,500 South Carolina condominium association and master flood policy records. A lapse stops renewals, which stops closings.
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