Mortgages through the VA home loan program aren't just for suburban homes. Any borrower wanting to purchase a condo unit with a VA guaranteed loan must purchase a unit on the "approved" list or have it added to the VA’s list if that project meets the requirements.
VA-loan knowledgeable lenders and real estate agents can help borrowers figure out if a property is on the approved list. There’s a VA condo database available to borrowers who are searching for the right property.
A trusted lender can help borrowers determine if a property is on approved lists of either the U.S. Department of Agriculture or Department of Housing and Urban Development. If so, the VA can add the property to its list, assuming USDA or HUD approval came before Dec. 7, 2009.
If a property is not yet approved by the VA, there is a process through which borrowers and lenders can seek to have it added to the approved list. The process can take weeks, even months, so don’t get ahead of yourself.
The VA Lender's Guide has a list of procedures to get a condo project approved if it is not already on that list.
According to the VA, "For condominium projects, the lender/sponsor must provide the following to the VA Office of Jurisdiction:
Unfortunately, condominium developments have no bonus to supply lenders with this information, which could immediately thwart a borrower’s chances at getting VA approval. A condo’s organizational files might include homeowner association bylaws, financial statements, minutes from recent homeowner meetings, special assessments, litigation statements and more.
The VA is looking for any potential conflicts, such as language that prevents resale or foreclosure unless the homeowners association approves. Age requirements for a property can pose problems, as can under-occupied developments. Lenders sometimes require a certain percentage of condo units to be under contract or sold before seeking VA approval.
It's the lender's responsibility to submit documentation to the VA on the borrower's behalf and unfortunately it's not a simple matter of sending in the organizational documents and waiting for the VA's response. Condo documents must be reviewed to ensure compliance with VA regulations. They must be "approved by VA before any lots or units in the project are eligible for VA loan guaranty."
When a project has been approved, the VA may have a list of "special conditions/requirements which must be met prior to VA guaranty of an individual loan in the project." There may be a pre-sale requirement, and restrictions based on the completion of the project. Those can include minimum VA requirements for common areas and other issues that could affect condo conversion or construction.
Can a condo project be denied VA approval or have the approval process suspended based on "deviations from VA requirements?" Definitely. Grounds for denial include incomplete documentation and inaccurate or inconsistent information submitted and other factors spelled out in the VA regulations.
A condo project that is denied can be revisited, pending receipt of additional information required by the VA. Overall, expect the approval proceedings for a condo property to take months, so don’t start the process unless you love the condo.