UNLOCKING CONDO OWNERSHIP WITH VA LOANS: NAVIGATING THE APPROVAL PROCESS AND WAIVER OPTION
For Veterans using a VA loan to purchase a condo, it's a common misconception that they are limited to units within complexes listed on the VA-approved list. While it's true that the VA has stringent criteria for condo approval, there is still a path forward if the condo you want doesn’t meet these guidelines. In this article, I’ll walk you through the VA condo approval process, discuss why many lenders won’t go through the effort, and explore how you can still buy a non-approved condo through a waiver.
Understanding the VA Condo Approval Process
The VA’s condo approval process is designed to protect Veterans by ensuring that properties meet specific standards. To start, condo complexes must undergo a detailed review to be added to the VA-approved list. This review looks at factors such as:
Owner-Occupancy Rates: The VA requires a high percentage of units to be owner-occupied. If a complex has too many rental units, it may not qualify.
Financial Health of the HOA: The VA wants assurance that the HOA is in good financial standing. If a significant number of unit owners are behind on their fees, the VA may deny the application.
Investor Ownership: Complexes where a single person or entity owns too many units can be seen as risky, leading to a denial.
Vacant Units: High vacancy rates are a red flag, suggesting potential financial instability.
In some locations, like New York City, condos are often denied because of a rule known as the “right of first refusal.” This clause lets the condo board approve or deny potential buyers or renters. The VA is cautious with this clause because it limits a Veteran’s ability to sell or lease their property when needed, which is why condos with this rule often don’t make it onto the VA-approved list.
Why Most Lenders Won't Bother with Non-Approved Condos
The VA condo approval process can be cumbersome and time-consuming. It requires substantial documentation, patience, and an understanding of the complexities of VA regulations. If a condo isn’t already on the approved list, many lenders won’t take the time to pursue approval. Here’s why:
Documentation and Bureaucracy: Getting a condo approved involves gathering extensive paperwork, including legal documents, financial statements, and insurance certificates. Most lenders consider this process to be a drain on resources.
High Denial Rate: Even after submitting all required documents, the VA may still deny the complex for various reasons, leaving lenders hesitant to invest time in uncertain outcomes.
Alternative Options: If the complex isn't approved, many lenders simply guide Veterans toward properties that are already on the VA list, as these involve less hassle and a quicker route to closing.
However, just because a condo isn’t on the list doesn’t mean it’s out of reach. This is where the waiver process comes in.
The Waiver Process: A Way Forward for Veterans
If your dream condo doesn’t meet VA criteria, you can request a one-time waiver. This waiver allows the VA to bypass its usual approval requirements, provided you acknowledge the complex’s shortcomings. Here’s how it works:
Acknowledgment of Issues: In your waiver request, you’ll need to state that you understand why the VA has rejected the condo, such as the presence of leasing restrictions or financial concerns within the HOA.
Statement of Awareness: You must show that you’re aware of the long-term impact these issues might have on your ability to sell or lease the unit. This is particularly important if there are legal restrictions or ongoing litigation.
Submission and Review: Once you’ve completed your letter, it is submitted to the VA for review. While this process doesn’t guarantee approval, it does offer Veterans a second chance when a condo initially doesn’t qualify for VA financing.
In a recent case, my client wanted to buy a unit in a building with a “right of first refusal” clause. Typically, this rule disqualifies a condo from the VA list. However, we submitted a waiver letter acknowledging this issue, and the VA approved the purchase. The waiver made it possible for my client to use their VA loan benefits, despite the condo’s non-compliance with standard guidelines. It’s important to note that the VA does not guarantee the waiver, and they will still may turn down a complex with significant issues like structural or safety issues.
Why VA Loans Are Worth It
Even with these hoops to jump through, VA loans offer substantial benefits that can make the effort worthwhile. For those who qualify, VA loans offer:
Low or No Down Payment: Unlike many other loans, VA loans don’t require a hefty down payment, making homeownership more accessible.
No Private Mortgage Insurance (PMI): VA loans don’t require PMI, which means lower monthly payments.
Better Interest Rates: Typically, VA loans offer more favorable rates compared to conventional loans.
Waived Funding Fees for Disabled Veterans: Veterans with a disability rating of 20% or more are exempt from the VA’s funding fee, which can save thousands of dollars over the life of the loan.
Final Thoughts
The VA loan program is one of the best mortgage options available to Veterans. If you’re a Veteran interested in purchasing a condo, don’t be discouraged if the property isn’t on the approved list. The waiver process might be an option worth exploring, and I’d be happy to guide you through it. Let’s work together to find a solution that allows you to secure the home you want with the benefits you’ve earned.