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VA Condo Loans and the Right of First Refusal

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There are a wide variety of options available on the housing market, and there are VA mortgage loans for many of those options. You can apply for a VA loan to buy a town home, mobile home, duplex, even a condominium.

For borrowers who want VA condo loans, there are VA rules and regulations that address circumstances unique to condo purchasing and ownership. Those rules include the requirement that condo projects be on a list of VA-approved projects.

One thing that's important to point out is that condos cannot be included on that list if the owner's association bylaws for that condo include something called the "right of first refusal" clause.

That clause is sometimes found in the condominium equivalent of a homeowner's association agreement or related documents that describe the condo owner's association rules and bylaws. The "right of first refusal" gives the association the option to buy or lease an individual unit before the sale of that unit is approved for an outside buyer.

What are implications for a VA borrower who wants to buy in a project featuring the right of first refusal clause? If the buyer wants to purchase a condo unit in a building where the right of first refusal is in effect, the buyer is offering to buy the unit, but that offer is contingent on the condo owner's association not buying that unit first.

The Department of Veterans Affairs does not approve condo projects that have the right of first refusal in the paperwork.

Condos not currently listed on the VA approved list are required to be reviewed before they can be included. That review includes an examination of the condo association bylaws and owner's agreements. Those without the right of first refusal clause aren't automatically approved. There are several other requirements, but the presence of such a clause prohibits the condo from being listed regardless of meeting other requirements. A condo project rejected by the VA may be resubmitted for review once the issues causing the rejection have been addressed.