VA Loans for Condos – The Right of First Refusal

Purchasing VA Approved Condominiums

It’s pretty widely known that a veteran can use their VA Loan eligibility to purchase a typical home, but it is less well-known that veterans can use their benefits to purchase a VA approved condos. There are a surprising amount of options that a VA-eligible borrower has when considering purchasing a home. In addition to a typical home or a condo, a veteran’s VA benefits can also be used to  townhomes, mobile homes, duplexes, quadplexes, and even manufactured homes. With each type of home there are different VA requirements and policies that one must comply with before being permitted to use their VA eligibility to purchase it. Condos are no different.

veterans administration approved condominiumsVeterans Administration Approved Condominiums

For a VA borrower looking to use their benefits to purchase a condo, there are a fair amount of rules and regulations they will need to be aware of. These are things that are unique to the situation of a condo purchase and so would not apply to other types of purchases. One of the biggest hoops to jump through for a condo purchase is making sure that the condo project is on the VA’s list of approved condos. The VA has a list of condos that they have approved for purchase and in order for a VA borrower to purchase a condo, it must be on that list. There are a variety of reasons why a condo project may not be on the approved projects list. Probably the most common is simply that no one has requested it to be added yet, but there are other reasons as well. One that might be surprising to many people is that a condo can be disapproved because of something called, “the right of first refusal” clause that might be included in the paperwork of the condo project.

Every condo project has an agreement of some kind that is similar in nature and purpose to a home owner’s association agreement. The agreement lists the rules and bylaws of the condo project and establishes the way things work in the condo. Sometimes, a clause in the condo project agreement establishes the right of first refusal. The right of first refusal is somewhat counter-intuitive, in that it doesn’t at first make sense why it would exist and why it would be problematic from the VA’s perspective. What the right of refusal states is that the association (the condo project) has the ability to buy or lease a unit before the unit is approved for sale to an outside buyer. Translation: if a project gets an offer on a unit, they have to offer the the condo owner’s association the unit before they are able to sell it to a third party.

As to why some condo projects have this clause in their agreement; good question. Someone on a condo board would probably be able to clarify that. However, the VA will not approve the purchasing of a unit in a condo project with the right of first refusal clause under any circumstances. The VA Home Loan Program for Real Estate Professional gives the following: “Condominiums must be approved by VA or HUD before any units in the project are eligible for VA loan guaranty.This is generally handled by the lender but a real estate professional or developer may submit documentation prior to a veteran being involved in a transaction to plan for the future. Common issues that do not allow us to approve projects are rights of first refusal or lease restrictions. VA does not have an owner occupancy ratio requirement but does have a 70% presale requirement.”

The VA doesn’t approve condo projects with the right of first refusal clause because the VA is concerned about protecting veterans, and helping veterans get suitable housing as quickly as the veteran needs it. With a condo project that has the right of first refusal, a veteran may go weeks or even months in negotiations for a unit, only to have that unit sold to the condo owner’s association and have all that time wasted, putting the veteran in an undesirable situation. The VA won’t approve those condo projects in order to make sure that doesn’t happen to a veteran who needs a suitable home quickly.

2 thoughts on “VA Loans for Condos – The Right of First Refusal

  1. Chana,

    Thanks for sharing. We love to discuss topics close to our hearts and minds so we are grateful that you feel the same way. Please feel free to call us at 866-569-8272 or you can even follow this link for access to emails, messages, live chat or whatever is easiest for you. We will look forward to talking with you soon.

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