Condos and townhomes are among some of the most popular housing choices today. And now it is even easier to get financing for condos and townhomes with the updated guidelines for both VA and FHA loans.
VA loans for condos and townhomes
According to the VA, condominium projects are common interest communities. It is similar to subdivisions that occupy and share the same land and common areas such as recreation facilities. Not all condominiums or townhomes are approved by the VA. This is because it is the entire development that the VA approves and not the individual unit. It is highly recommended to check if the condominium or townhome is approved by the VA.
VA condo approval status
There are three types of VA approval status that applies to condos and townhomes:
· Accepted without conditions
Borrowers can use a VA loan to purchase a unit in the project
· HUD accepted
Borrowers need to verify if the project has been approved by the VA
· Accepted without conditions
Borrowers cannot use a VA loan to purchase a unit in the project
However, projects that are not currently approved by the VA can apply for approval. Once the condominium or townhome is approved, any of the units can be purchased with a VA guaranteed loan.
Requirements for a VA loan
VA loans are designed not just for veterans but also for other military personnel. In order to qualify for a VA loan, the following requirements must be met:
· Certificate of Eligibility (COE)
A minimum term of service is required. Veterans need to have served 90 total days during wartime and 181 continuous days during postwar/peace time. Active servicemen need to have served 90 continuous days. A spouse of a service member is also eligible.
· Credit score
VA lenders require a score between 620 and 640 at the low end. The average FICO score for an approved and closed VA purchase score is 704.
· Employment and Income
A two (2) year stay with the same company is expected but not required.
· Debt-to-Income ratio
Borrower should not spend more than 41 percent of their gross monthly income on the entirety of paying monthly recurring debt.
· Property and loan limits
The value of the property must not exceed the loan limits set by the VA.
FHA loans for condos and townhomes
The FHA Condominium loan is designed to encourage lenders to make affordable mortgage credit to borrowers who have non-conventional forms of ownership. As such the FHA is very stringent when it comes to financing a loan for condos or townhomes. Before a condo project is approved for an FHA loan it must meet the FHA’s requirements. Some of the requirements are:
· Adequate insurance coverage
· Limited commercial use
· Individual ownership restriction
· Substantial completion of the development
· Covenant restrictions
· Payment of dues
· Owner occupancy
The process for approval is time-consuming and includes submission of numerous documents. That is why many condo developments forego the FHA approval. It is important to check if the condo development qualifies before pursuing the purchase. However, if the condo is FHA approved it makes for a very affordable housing option.
Changes in the FHA’s condo approval process
Today, the FHA has made it easier for condos to get approval. Among the changes include:
· Modification of requirements for recertification
· Revision of the required owner-occupancy percentage calculation
· Expansion of eligible condo project insurance coverage
These changes have broadened opportunities for people to find a home in a condo development. This will make it easier for low and moderate income families purchase homes at much lower costs.
For information on FHA loans and purchases, including affordable mortgages, contact me or call/text me at 760 622 5087.