Last week, I fielded an inquiry from a gentleman asking if non-warrantable condos could be eligible for a VA condo project approval. He had read one of my blog articles on ActiveRain about financing non-warrantable condos. He wrote:
“I am hoping you can help me here. Does a condo have to be warrantable in order to be VA approved? It seems like most of the requirements I read for a VA loan are met by some projects that are non-warrantable.”
And my response was…
There are many facets of a condominium that can render it “non-warrantable” to Fannie Mae. Fannie, Freddie, FHA and the VA all have different standards for acceptable condominiums. There are many commonalities amongst them but each has its nuances. Fannie, FHA and the VA do not use each others’ approved condos lists.
For example, Fannie does not allow one entity to own more than 10% of the units; for FHA, this is 50% and the VA does not have this requirement. FHA will not allow the investor concentration to exceed the owner-occupancy concentration; Fannie and the VA will allow it if the subject purchase loan is to an owner-occupant and Fannie will allow it for a second home purchase. Fannie and FHA allow certain leasing restrictions that the VA does not.
Thus, there really is no way to answer your question without specific details regarding why you think that a condominium project is not warrantable. I would be happy to answer any specific questions that you may have.
He had a follow up question:
“I doubt that I am explaining myself clearly, but maybe just explaining what I am doing will help. You see, I went to look at a condo conversion that is taking deposits as we speak; 20 of 29 units have been reserved. When I asked about the units' ability to be financed, they told me that they were unfamiliar with VA terms, but that their development was non-warrantable.
From what you are telling me, it seems as though the development is likely not FHA or Fannie warrantable, but they just don't know about the VA path. Does this seem right?”
…And my response…
“Non-warrantable” means that ordinary financing options are not available but I believe is technically in reference to conventional financing (Fannie Mae and Freddie Mac).
You could find out why he is claiming that the project is non-warrantable. My guess is that the developer believes that it doesn’t meet the owner-occupancy requirements for typical financing options, including VA. The only requirement to be met is that 70% of the units must be sold or under contract to someone other than the developer.
For the project to become eligible for FHA approval, half of the units in the conversion must convey to owner-occupants or be under contract for purchase by an owner-occupant; there is no pre-sale requirement for conversions. For VA, 70% of the units must be conveyed for condominium conversions. The developer owns 9 of the 29 units, which would render it non-warrantable. The VA may approve this condominium with the contingency that one more unit conveys to someone other than the developer..
Brent might have a chance at this if the developer is willing to get the project VA-approved.
Top image courtesy of Stuart Miles/freedigitalphotos.net
The Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their approvals with FHA and the VA or become recertified with FHA. We have assisted nearly 200 condominiums and we can help your association.
ReadySetLoan is an active member of the Connecticut and New England chapters of the Community Associations Institute (CAI) and is a frequent contributor to Common Interest Magazine as an expert in FHA/VA condominium project approvals.
Please contact us with any questions regarding FHA or VA condominium project approvals. You can email me at firstname.lastname@example.org or call me at 404-433-4565. I will be happy to answer any of your questions.
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Check out our article in Common Interest magazine on page 19!