Can You Buy a Townhouse With a VA Loan?

VA loans provide a significant benefit for eligible service members, veterans, and surviving spouses, assisting them in achieving homeownership. These loans are designed to offer favorable terms, making property acquisition more accessible. While commonly associated with single-family homes, VA loans can also be utilized for purchasing various other property types, including townhouses.

Qualifying a Townhouse for a VA Loan

A townhouse must meet specific property requirements to qualify for a VA loan. Often, townhouses are structured as units within a Planned Unit Development (PUD) or condominium project. For VA financing, these developments need to be approved by the Department of Veterans Affairs. This approval ensures the property adheres to VA standards, considering the community’s stability and governance.

Verifying a development’s VA approval is a crucial step. Buyers can use the VA’s online search portal to check if a PUD or condominium project is on the approved list. Lenders experienced in VA loans can also confirm a project’s approval status. If a project is not approved, a lender or the homeowners’ association (HOA) may initiate the approval process, though this can take several months.

Homeowners’ associations play a significant role in a townhouse’s VA loan eligibility. The VA examines the HOA’s financial health, including its reserves and member delinquency rates. Requirements include at least 50% owner-occupancy within the development. The VA ensures mandatory HOA assessments are subordinate to the VA-guaranteed mortgage.

A VA appraisal is required, assessing the property’s value and its adherence to Minimum Property Requirements (MPRs). MPRs ensure the townhouse is safe, structurally sound, and sanitary. The appraisal is not a home inspection, but it identifies any apparent issues that must be addressed for the loan to proceed.

Meeting VA Loan Borrower Requirements

Borrowers must satisfy criteria to obtain a VA loan. Service requirements include 90 consecutive days of active duty during wartime or 181 days during peacetime. National Guard and Reserve members need six years of service, and certain surviving spouses may also qualify. The first step to confirm service eligibility is obtaining a Certificate of Eligibility (COE) from the VA, available online or through a VA-approved lender.

Lenders evaluate creditworthiness, though the VA does not set a minimum credit score. Most private lenders look for a credit score of at least 580 to 620. Lenders review the borrower’s financial profile, including income and employment stability, to determine loan repayment ability. This ensures a reliable income source for monthly mortgage obligations.

The residual income requirement is a key part of VA loan qualification. This calculation determines if a borrower has enough discretionary income each month after major debts and housing expenses. It ensures veterans have funds for daily living expenses like food and utilities after covering financial obligations. This protects borrowers from financial strain and contributes to low default rates.

Navigating the VA Loan Application for a Townhouse

Securing a VA loan for a townhouse involves several steps. The process begins by finding a VA-approved lender experienced in townhouse or condominium financing. This ensures familiarity with specific property requirements. After consultation, borrowers can seek pre-qualification or pre-approval, which estimates the loan amount they may qualify for. This helps set a realistic budget and demonstrates serious intent to sellers.

Once pre-approved, find a VA-eligible townhouse and make an offer. Work with a real estate agent who understands VA loans and property eligibility. After an offer is accepted, the lender orders a VA appraisal to determine the property’s market value and confirm it meets the VA’s Minimum Property Requirements. While the VA appraisal is mandatory, a separate home inspection is recommended to uncover issues not covered by the appraisal.

Underwriting follows, where the lender reviews financial documents and the appraisal report. If the appraisal value is lower than the purchase price, the borrower may negotiate with the seller, pay the difference, or withdraw the offer. Any repairs identified by the VA appraiser to meet MPRs must be completed before closing.

Finally, the loan moves to closing, where all final documents are signed. A cost associated with VA loans is the VA funding fee, a one-time charge from 0.5% to 3.3% of the loan amount. This fee helps offset program costs and can be financed into the loan. Total closing costs for a VA loan range from 1% to 6% of the loan amount, but the VA limits certain fees and allows sellers to contribute up to 4% of the sales price toward concessions.