It's Getting Tough to Buy Condos with FHA or VA

500 Broadway, Vancouver, WA
Condos on the upper floors

Many buyers are interested in a condominium home. There are many advantages to this type of home. The homeowner is only responsible for the interior of the unit and they pay an HOA to manage the grounds, external facilities and common areas. Small modestly built condos can also be less expensive than a comparable home. There are disadvantages as well but once a buyer has decided that a condo is for them, they must be certain that they can finance it.

If the buyer is a veteran looking to use a VA loan or is intent on an FHA loan, they must be certain the condo is approved by HUD (Federal Government, Department of Housing and Urban Development). HUD has stopped approving condos on an individual basis and is requiring the entire complex to be approved. In the Clark County, Washington market I am finding that the overwhelming majority of condos are either expired or not approved at all.

If the condo is approved, the buyer and their agent ought be certain that the approval does not expire before the sale closes. This is paramount should the condo be a short sale. Short sales take much longer to close. Buyers should have at least 6 months and preferably a year of approval left is wise when offering on a short sale condo.

The good news for FHA buyers is that some banks are offering a 95% conventional loan. These loans do not require FHA approval on the condo unit or complex. They will however have some underwriting requirements that could pose problems. For example, most banks are looking for at least 50% owner occupied units in a condo project. These conventional loans require a slightly higher down payment than an FHA loan but offer superior terms regarding mortgage insurance. It is always a good idea for buyers to meet with a mortgage professional prior to home hunting.

When offering on a condo, buyers should be certain that their agent is thorough in vetting any potential issues with financing.

Since I am on the subject of condos, I will touch on HOA issues as well. Condo projects have HOAs that oversee the common areas and buildings. Since the unit owner only owns the space inside, the HOA owns the buildings and land. The HOA is a common ownership of all the unit owners. Essentially condo owners have two things they own. They hold title to the unit (interior space of their unit) solely as an individual and then they hold title to the whole complex property as a partial owner, usually held as tenants in common. They have an equal share with each of the other owners or possibly proportionate to the relative value or size of their unit.

HOAs are required to keep to state standards for financial disclosure and management. Before buyers commit to a purchase on a condo or other property with an HOA, they should be certain to check out the HOAs financial and legal status. There are times when an HOA is involved in litigation. They can be either the plaintiff or the defendant. In either case, financing is nearly impossible to obtain while there is an open litigation or a judgement is in force.

Attached Townhouse in Camas, WA
This is not a condo

Condos should not be confused with other homes in planned unit developments. Many neighborhoods and attached housing projects have an HOA but they are NOT condos. A condo is unique in the ownership as just the space inside the walls. Attached housing with common walls such as a townhouse or row houses are often held in ownership the same as detached housing. The owner owns the structure and the land. Typically the HOA (if present) takes care of keeping the neighborhood consistent by enforcing rules designed to protect its integrity. These HOAs may also provide upkeep and care of other amenities such as a neighborhood park, swimming pool, etc. In these scenarios, the HOA is not responsible for the structure of the buyers home, roof, siding, etc. The dues are likely to be lower than those in a condo. The FHA and VA loans will not require HUD condo project approval on these types of developments.

Buyers should work with an experienced agent when considering a condominium home. They can be a wonderful opportunity for quality living, but they have a few quirks that require thorough care during the purchase process.