We are asked this so often that we thought it warranted a reminder.
An entire condominium (condo) complex needs to be FHA or VA approved before a unit within the complex is eligible for FHA or VA financing.
Townhomes and PUDs (Planned Unit Developments) do not need to be FHA or VA approved, even if they are part of a complex comprised of contiguous units that look just like condos.
“Townhome” is not actually a formal term, but is used loosely in our industry to designate a contiguous unit within a larger complex that is not a zoned “condominium.”
Buyers cannot tell the difference between a condo and a townhome by appearance alone. They need to verify zoning within a title report.
There are many condo units that sit on the ground with garages and small yards (like most townhomes) but are still zoned as condos.
The condo/townhome distinction is important not just because many condo complexes are not FHA or VA approved. It is also important because condo financing usually has slightly higher rates, and because condo financing often requires extra work and time for HOA scrutiny.
Condo HOAs are subject to various restrictions with respect to ownership concentration (10% limit), litigation, cash reserves requirements, and owner occupancy ratios (if the buyer is an investor), among other things.
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Jay Voorhees
Founder/Broker | JVM Lending
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