How Government Loans Can Help You Purchase a Condo
Today, we welcome our guest blogger Kath Ko, director of outreach for Federal Home Loan Centers.
Many individuals and couples who are successfully retired, or on their way to financial independence, choose to rent instead of buy for a number of different reasons. Some are just getting settled into their dream job, others don’t want the hassle of home ownership, and a few just do not understand how easy it is to become a homeowner. Finally, many of our successful clients have children who are looking at buying their first home. This blog is for them – an article to provide practical no-nonsense information to help separate myth from fact and provide a clear path to homeownership for deserving families.
Owning a condominium is sort of the “cousin” of renting – and many in the Jacksonville area choose to own a condominium instead of a stand-alone home. In this article, Kath discusses using government loans to finance a condo – an option many people did not know exists.
By Kath Ko
Government guaranteed loans administered by the Federal Housing Administration (FHA), the Department of Veteran Affairs (VA), and the U.S. Department of Agriculture (USDA) are for the purchasing of single-family homes and multi-family dwellings. However, these low-cost government loans can help you purchase a condo as well! The only requirement is for the condo to be approved by either the FHA, the VA, or the USDA.
FHA Condos
Purchasing a condo with an FHA loan requires the condo to be approved by the Department of Housing and Urban Development (HUD). For a condo to be approved by the FHA, it must be at least 75% residential, with a maximum of 25% used for business. Usually, businesses are located on the floor level with access to the street.
FHA loans can also be used for the purchase of manufactured condos. However, the building cannot be a hotel or a motel property.
Additionally, if the FHA does not approve the condo, the HUD on October 15, 2019, brought back spot approvals, which were banned in 2010. During a call with reporters, HUD Secretary Ben Carson stated that the return of spot approvals “offers significantly more options for individuals and families to buy a home.”
What are Spot Approvals?
They have a single unit approved within a complex instead of having the whole complex go through the approval process. However, the spot approval process has specific guidelines that must be followed for the unit to qualify. These include:
Complexes with ten units or more only allow for 10% of condo units to be FHA insured.
Complexes with less than ten units cannot have more than two FHA-insured units.
Approved condos must have at least 50% owner occupancy.
The FHA can ensure only 50% of the total amount of units approved in a condominium.
The National Association of Realtors® celebrated the HUD’s return of spot approvals since they believe it will increase public interest in condos purchase. Previously it was almost impossible, especially if the condo was not approved for FHA financing. Which before the HUD decision was only about 6% of condos in the whole country.
VA Condos
Using a VA home loan to purchase a condo is possible; however, it depends on whether the condo is VA-approved. Thankfully, some VA-approved lenders like VA Home Loan Centers can provide potential borrowers with a list of VA-approved condos.
However, if a condo is not VA-approved condo, there is a process to get it approved. Suppose the applicant is successful in getting the condo through the VA approval process. In that case, additional requirements are necessary for the VA to finance the property’s purchase. These include:
Their owners occupy at least 50% of the units in the complex.
At least 75% of the community is making their HOA payments on time.
If the condominium is new, the VA will not approve a VA home loan until 75% of the units sell.
USDA Condos
Even USDA home loans, which are usually only for modest single-family homes, can be used to purchase a condo. However, they do require the condominium to be within a USDA-approved rural area.
Additionally, the condo must also be listed on the FHA, VA, Fannie Mae, or the Freddie Mac-approved condo lists. The USDA also requires that the property is:
A safe and sanitary dwelling.
Be certified as structurally sound by a state-licensed home inspector.
Have flood insurance if the property is located within a floodplain.
All three Government home loans require that the applicant occupy the condo within 60 days of closing. Applicants who use a VA home loan to purchase a condo can have the 60-day rule waived if they are on active duty and deployed. From then on, the 60-day limit will be extended to a year for VA home loan recipients. FHA allows for up to five people to live in the condo. At the same time, USDA has limitations regarding who can stay in the condo, with caretakers not being allowed to occupy the home.
To learn more about programs available to you or how to apply for a home loan, contact a VA-Approved lender like VA Home Loan Centers at https://www.vahomeloancenters.org. While most lenders may be able to help you with a government-guaranteed loan administered by the FHA, VA, or USDA, by dealing with a VA-approved lender who specializes in government-guaranteed loans, you will likely avoid many of the pitfalls and hassles that clients typically encounter when trying to get one of these loans through a broker who is unfamiliar with the nuances of the programs.
Good luck, and happy financing!
Kath
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