When a homebuyer is interested in purchasing a condominium or townhome utilizing FHA or VA financing, the homeowners association of the subject property must be approved by the FHA or VA.
This is how the U.S. Department of Housing and Urban Development (HUD) ensures that condominium complexes are financially stable and well managed.
Why is this important?
To buy a condominium using an FHA loan, the entire condo project must be approved by HUD. FHA financing is much easier to qualify for than a traditional mortgage because the lending guidelines are more flexible; a down payment of just 3.5% is required and lower FICO scores are a few examples of how FHA financing is more lenient for borrowers looking to qualify for a mortgage loan.
HUD uses the certification process as a risk management tool to reduce the probability of foreclosures on FHA insured loans on condominiums.
Similarly, A VA approved condominium or townhouse has to undergo a review by the Veteran’s Administration to be approved for sale. The VA does not look at individual units for VA condo approval, they focus on the entire HOA project. The VA could deny a condo development for a variety of reasons including:
- Too many tenant-occupied versus owner-occupied units
- Too many units are behind on their HOA dues
- Multiple units are owned by the same individual or entity
For a list of all publicly-approved condos, visit the HUD website here. If you have any questions about FHA or VA condo approval, please contact us at (760) 930-0569 and one of our loan officers will assist you.