VA Loans and Condo Project Approval Procedures

We frequently get questions about VA loans for condos. One commonly asked question involves the details of the VA loan approval process for condos.

If a borrower wants to purchase a condo unit with a VA-guaranteed loan, the project must be VA approved.

The VA Lender’s Guide spells out a set of procedures to get a condo project approved. According to the VA, “For condominium projects, the lender/sponsor must provide the following to the VA Office of Jurisdiction:

•       A written request for VA-approval.
•       A copy of the condominium’s organizational documents.”

That means it is the lender’s responsibility to submit documentation to the VA on the borrower’s behalf. It’s not a simple matter of sending in the organizational documents and waiting for the VA’s response–condo documents must be reviewed to make sure they comply with VA regulations, and “approved by VA before any lots or units in the project are eligible for VA loan guaranty.”

Once the review of the documents has been completed, the VA notifies the borrower of its decision to approve or deny. When a project has been approved, the VA may have a list of “special conditions/requirements which must be met prior to VA guaranty of an individual loan in the project.”

Those conditions may include a pre-sale requirement, and restrictions on VA loans based on the completion of the project (including common areas and other issues that could affect condo conversion or construction projects). A condo may be denied VA approval or have the approval process suspended based on “deviations from VA requirements,” incomplete documentation, inaccurate or inconsistent information submitted or other factors.

That may not be the end of the issue–the VA approval process could be revisited pending receipt of additional information required by the VA.

Borrowers and lenders should know VA rules include favorable treatment of condo projects already approved by another government agency. “Generally, projects already approved by the Department of Housing and Urban Development or the United States Department of Agriculture (USDA Loan program) do not need further VA review.

“Upon receipt of evidence of HUD/USDA approval, such as a copy of the HUD/USDA approved project list or the project approval letter, the VA office of jurisdiction adds the project to the nationwide VA list without issuing a formal VA approval letter.”

According to the VA Lender’s Guide, some condo projects approved by other agencies may not be acceptable to the VA. “In rare cases, HUD or USDA may approve a project that VA discovers does not comply with VA regulations.”

VA rules don’t permit exceptions in these instances. “In those cases, VA notifies the lender as soon as practicable that it will not guarantee loans in the project.”