What Is a Spot Loan?

A spot loan is a type of mortgage loan issued to a borrower to purchase a single unit in a multi-unit building, such as a condominium complex. Some lenders must approve an entire building before they agree to approve a loan for a unit within that building. However, as long as the building meets certain broader requirements, other lenders will make a spot loan after approving only the unit to be purchased.

How a Spot Loan Works

Spot loans are personal or business loans that lenders issue quickly—or on the spot—to individuals or businesses for unforeseen expenses. Lenders can approve these loans in as little as 10 minutes. Because spot loans are typically unsecured, meaning the lender isn’t given a specific claim on a borrower’s assets, borrowers will typically pay a higher interest rate on these loans. Instead of pledging collateral, borrowers qualify for loans based on their credit history and income.

You can apply for a spot loan online, over the phone or through your ATM. Borrowers must submit personal information including name, phone number, Social Security number, income, and the intended purpose of the funds. The process for approving the loan and its disbursal is in many cases completely automated, and a borrower can receive the funds in a matter of hours or days.

Spot loans are personal or business loans that lenders issue quickly—or on the spot—to individuals or businesses for unforeseen expenses.

Spot Loans vs. FHA Spot Loans

The U.S. Federal Housing Administration (FHA) has a spot loan program that allows condo buyers to obtain an FHA-insured loan on an individual unit in multifamily apartment buildings. The program allows borrowers to get loans on condos when they might not otherwise have qualified.

However, the FHA spot loan program has floundered since the crash of the real estate market. As of 2018 just 7% of condo projects or buildings were certified by the FHA to receive spot loans. In 2016 the U.S. Department of Housing and Urban Development began discussing revising its regulations to open a larger share of the nation’s multifamily housing complexes for FHA loans, a top priority in an age when much new housing construction comes in the form of such condominiums. However, nothing has been decided yet.

For a housing complex to become certified by the FHA program, its board of directors must submit detailed information on areas such as financial reserves, insurance, budgets and numbers of renters.The goal of any regulation revisions would be to lower the burden on condo associations for FHA certification.