What to know about buying a condo with a VA loan

VA loans, backed by the Department of Veterans Affairs (VA), are designed to extend affordable mortgages and housing options to eligible veterans, active-duty service members and qualifying spouses. 

They require no down payment and have lower interest rates than other loan options. For those who qualify for a VA home loan, buying a condo can be a great choice. You’ll just need to ensure that the condominium is approved by the VA.

If you’re considering which type of property to buy with a VA loan, you should know the advantages of buying a condo and how you can buy one with a VA loan. Learning what makes a condo eligible for a VA loan and what you can do if you want to buy a noneligible condo can also help you feel more prepared going into the home buying process.

Can you buy a condo with a VA loan?

The short answer is yes.

The longer answer is that buying a condo with a VA loan isn’t much different from buying any other home, but the condo complex must still be VA approved. The purpose of this approval is to ensure that eligible VA loan borrowers aren’t overly burdened by the HOA in any way. Townhouses are also covered by the VA’s approval rules.

If you’re considering a particular condo, make sure the condo complex or development’s homeowners association has received VA approval. This protects the interests of both the VA loan holders and the government, which backs the VA loans. Any complex you’re considering will have to meet the requirements set by the VA.

Your real estate agent should be able to help you navigate VA condo HOA approvals.

Why condos can be great for military personnel

Before we dig in, let’s talk about what a condo is in the VA’s terms. The VA defines a condo complex or planned unit development as a common interest community – everyone living there shares land and common areas like playgrounds and parking lots.

There are many factors to consider when figuring out if a condo is a good investment. Besides generally being more affordable than single-family homes and often being located in desirable spots, there are other advantages.

Amenities

Condos typically have amenities that appeal to a wide range of military folks and their families, including fitness centers, pools, community spaces and sports areas. Whether you participate in an active social life or you want to retire in quiet comfort, a condo can offer the conveniences you want.

Fewer responsibilities

Service members who are younger or live alone may prefer condo living over a single-family home because condos generally come with few maintenance responsibilities. Condo complexes often have a homeowners association (HOA) to handle much of the maintenance. Not being responsible for upkeep and maintenance can be attractive if you don’t want to deal with these tasks. The same idea applies to prospective buyers who may not be up for the physical labor the outdoor maintenance of single-family homes generally require.

Think of paying the HOA fee as funding the benefits of having a landlord who takes care of your broken faucet while you’re building equity in your home.

Clear rules and regulations

HOAs also have rules and regulations set out in their bylaws. The rules are intended to promote uniformity and orderThe rules – which can cover regulations on home repairs or upgrades, noise levels and pets – may feel restrictive. But the other side of HOA rules means consistency and standards for everyone in the community to uphold.

What are the benefits of using a VA loan for a condo?

Using a VA loan to buy a condo can be a smart move for eligible home buyers. VA loans are popular because they come with:

• Lower interest rates: You can usually get a VA loan with an interest rate that’s 0.5% – 1% lower than conventional loans. This can save you thousands of dollars over the life of the loan.
• No down payment requirement: There’s no minimum down payment required with a VA loan. This makes it possible to buy a home without having to save for years for a down payment.
• No private mortgage insurance: Unlike with conventional loans, borrowers who use a VA loan aren’t required to pay private mortgage insurance (PMI), even if they don’t have 20% equity in their home. However, home buyers using a VA loan will need to pay a one-time VA funding fee.
• More lenient lending requirements: VA loans typically come with lower qualifications for home buyers to meet. In fact, while lenders usually have minimum requirements for credit score, the Department of Veterans Affairs doesn’t set credit score minimums as a condition of the loan.   

Are there closing costs when you buy a condo with a VA loan?

When you buy a condo with a VA loan, you’ll have to pay closing costs similar to any other home buyer’s. Your VA loan’s closing costs will cover the various costs of the home buying process, including a VA appraisal fee.

If it’s your first time using a VA loan to buy a home, you’ll also have to pay a one-time funding fee to the VA. The VA funding fee is a percentage of the loan amount. The exact percentage of you’ll need to pay depends on how big of a down payment you made on your home. 

What can make a condo HOA ineligible for VA approval?

Before you can buy a condo with a VA loan, the VA ensures a condo complex is a good fit for those eligible for VA loans by holding the complexes to high standards. There are several reasons why a condo complex’s HOA might not be approved by the VA.

There’s a right of first refusal clause

If an HOA’s bylaws give the HOA authority over who you can sell the condo to and when (also known as the right of first refusal), it will not meet VA approval. Let’s look at what a right of first refusal entails in this particular area:

• The bylaw allows the HOA to be first in line to purchase the property if the VA loan holder decides to sell it.
• The rule allows the HOA to buy the unit for the same price and terms as a prospective buyer.
• An HOA can purchase a unit to make it a guest unit, community area or the property manager’s residence.
• The bylaw may be invoked to prevent a below-market sale that could affect the appraisal value of other units in the development.

There are low owner-occupancy rates

If a condo complex or development has low owner-occupancy rates, the VA may withhold their approval. The general rule is that 50% of the units must be owner-occupied, meaning the units aren’t rentals or owned by investors. This rule is in place due to the high rental rate of condos.

Residents are current on HOA payments

In addition to the 50% owner-occupancy rule, the VA requires that at least 75% of the unit owners are current on their HOA fee payments. The VA may also have a cap on the amount an HOA can charge in fees.

Most of the units in a new development are sold

If a development is new, the VA will wait to approve it until at least 75% of the units are sold. And no more than 10% of a development’s units may be owned by a single entity. The entity can be an individual, an investor or a company.

What if I want a condo that’s not VA approved?

You have a few options if you want to buy a condo that’s not on the VA approved condo list. The easiest fix is to only look at approved properties with your real estate agent. However, if you want to continue to pursue that particular condo, you have a few other options.

Petition for approval yourself

But if your desired condo complex isn’t approved by the VA, you can petition for VA approval. It will involve working with other entities in the transaction: the HOA and the mortgage lender.

Ask the HOA to apply for approval

Borrowers can ask the HOA to apply for VA approval. It’s a complicated process that involves a lot of paperwork and can last for months. You should expect the approval process to lengthen your transaction time. Because obtaining approval often involves an attorney, HOAs must pay for it. The VA will often expedite requests accompanied by an attorney opinion letter, which is a formal letter of judgment from a legal professional, based on their expertise.

Ask your mortgage lender for help

You can also check with your mortgage lender to see if they can get the condo project on the VA approved list. They’ll likely have experience in this area. And your real estate agent may be of help here, too.

VA loans, condos and approvals: FAQs

Looking for more information about VA loans and condos? Here are the answers to some frequently asked questions.

How long is a VA approval on a condo good for?

Once a condo is approved by the Department of Veterans Affairs, the approval doesn’t expire or need to be renewed.

Can a condo be VA approved but not FHA-approved?

A condo may be VA approved but not FHA-approved. Their approval processes are similar – but ultimately different. In the past, VA and FHA approvals were reciprocal, meaning if the VA approved a condo complex, the FHA would automatically approve it. But this is no longer the case.

Where can I find the VA’s condo approval guidelines?

Read chapter 16 in the Lender’s Handbook from the Department of Veterans Affairs to find the VA’s approval guidelines for condos. If the condo you’re looking at isn’t approved, you can apply for approval through your HOA.

Where can I look for the VA Condo Approval List?

To find the official list of VA approved condos in a certain area, you must fill out the form on the VA’s site to request a customized condo report. A real estate agent familiar with the area you’re searching in can likely help you find VA approved condos more efficiently.

The bottom line: VA loans and condos can be a great fit

You can use a VA loan to buy a condo as long as you’re eligible to take out a VA loan and the property’s HOA meets the VA’s requirements. The process for getting your VA loan can feel like it has additional hurdles to overcome, but there are significant benefits to gain. The VA will check condo developments to make sure they’re a good investment for you, HOA fees, the other unit owners and the owner-occupancy rate in the development or complex.

Ready to buy a condo with a VA loan? Start the approval process with Rocket Mortgage^®. Learn whether you qualify for a VA loan to start your condo search as soon as possible.