Condominiums, and Planned Unit Developments
Deciphering the VA Lender’s Handbook Chapter 16 Part 1
There are some special considerations for the VA when a borrower wants to purchase their home inside a condominium, a common interest community, or a planned unit development. Chapter 16 specifically covers these requirements and clarifies why many of them are in place. First, the VA defines a “common interest community” as “…a subdivision containing common land, often including recreational amenities. That common property is typically owned by an association of homeowners (HOA), to which they all must belong and pay lien-supported assessments for a proportionate share of the expenses of the HOA.” In other words, if there is any common property that is paid for by an organization that the residents are required to belong to and pay fees to, the VA will consider it a common interest community. Condo projects and planned unit developments (PUDs) are considered common interest communities by the VA.
To put it bluntly, condos can be annoying to purchase with a VA loan. They aren’t always, but they can be if the condo is not already on the list of VA-approved condominiums. A condo project will only be put on the VA’s approved list if it meets all of the VA requirements, but the VA isn’t proactively seeking out condo projects to add them to their list; a condo project is only added to the list is if a veteran borrower wishes to use their VA loan benefits to purchase a condo in the project and it’s not already approved. The VA will go through their process to determine whether the project is acceptable to them. PUDs are easier than condos because they don’t have to be approved by the VA before any veteran can purchase a property within it. The list of VA-approved projects can only be reached by a lender using TAS (The Appraisal System). If you are wondering whether a condo you’re interested in is VA-approved, you’ll need to work with a lender to find out.
You may wonder why the VA makes it more difficult to purchase a condo than a standard home or even a manufactured home. Well, you can rest assured that it’s not just because they want it to be difficult, and it’s not because they have a thing against condos or other common interest communities. The Handbook provides the following explanation: “VA’s goal is to help protect the interests of veterans and the Government by ensuring that all properties located in a common interest community meet VA regulatory requirements. Meeting this goal as efficiently and cost effectively as possible serves the best interests of all program participants involved.” In other words, the VA wants to make sure that the restrictions, liens, and other common interest community-related conditions put on a veteran are both normal and acceptable, and give the veteran enough control over their own property.
Even though condo projects are the only common interest community that must be approved directly by the VA beforehand, any properties that are being purchased with a VA loan must meet with the VA’s title and lien-related requirements. The lender is the party responsible for making sure that the community meets the VA’s requirements. While the VA does not have strict requirements for maintaining evidence of this compliance, the lenders are advised to heed the advice of their legal counsel, who will read the community contract or agreement and advise you and the lender what the contract says.
In order to be acceptable to the VA, the title to the estate must not be less than fee simple, except under certain circumstances. Ask your lender or an attorney if you are not sure what that means. Also, the title must not be subject to unreasonable restrictions to use and occupancy, except under certain circumstances, and certain minor title limitations will not be considered by the VA, to the extent described, as materially affecting the value of the property. We’re going to keep talking about the VA requirements in the next article, so if you’re looking for more information on this topic, it’s on its way! Also, feel free to give us a call to find out if the condo you’re interested in is approved by the VA.