Buying a Condominium With A VA Loan
Buying a condo unit with a VA loan is more complex than purchasing a house. When you buy a suburban home, you’re purchasing the entire property, but those buying condo units are purchasing one part of a larger building. Because of its more communal nature, this type of home ownership requires entering into a cooperative agreement with the other condo owners for maintenance, upkeep of common areas, and related matters.
These agreements are not standardized; they vary from project to project. Because such agreements are legally binding, and sometimes affect the outcome of a loan application, the VA has rules governing condo purchases that include a requirement that the VA approves any condo project selling to a VA borrower. A master list of VA-approved condo projects is available at:
What About Condos Not Yet VA-Approved?
It’s understood that not every condo project on the market is already VA-approved. If a buyer finds a condominium to purchase with a VA home loan and discovers it has not been listed on the VA approved list, it may be submitted for approval. Chapter 16 of the VA Lender’s Handbook describes the submission process. The requirements include the following:
“For condominium projects, the lender/sponsor must provide the following to the VA Office of Jurisdiction:
· a written request for VA-approval, and
· a copy of the condominium’s organizational documents.
Note: These documents must be reviewed for compliance with VA regulations, and approved by VA before any lots or units in the project are eligible for VA loan guaranty.”
VA Condo Approval And The Lender
Note that it is the lender’s responsibility to make the condo approval process happen, which means the borrower and lender must communicate first before any submission to the VA can occur. VA Loan rules add, “A condominium must be acceptable to VA before any unit in the project can be eligible for VA loan guaranty. To avoid an unnecessary appraisal fee, a condominium unit should not be appraised unless there is a reasonable likelihood that VA or HUD will accept the project prior to loan closing.”
That means the borrower will likely be required to submit an application for the VA mortgage or at least get pre-approval prior to the condo approval process starting.
VA Condo Loan Approval Issues
VA loan rules state, “Property involving a less than fee simple ownership (i.e., leaseholds, cooperatives, ground rental arrangements) is not eligible for appraisal without prior VA approval of the specific legal arrangement or project. Submissions to VA Central Office (262A) must include
· details of the ownership arrangement
· copies of leases or other instruments creating the estate, and
· recommendations of the VA office of jurisdiction.”
If you aren’t sure whether the condo project you’re considering falls under the “less than fee simple” category, consult with your loan officer for more information.