This Veterans Day, we’d like to take special notice of the former military members in our HOA communities. After they fought to keep our homeland safe, our country offers its thanks by helping vets to settle in safe, affordable, and stable home communities. To this aim, the Department of Veterans Administration (VA) partnered with the federal department of Housing and Urban Development (HUD) to provide low interest, low down payment mortgages valued up to $580,000. However, not all HOAs and condo associations qualify for VA loans. If you want to offer veterans the opportunity to live and thrive in your HOA community using their VA loan benefits, you must submit your HOA for approval.
Prior to the housing market crash of 2008, the VA piggybacked off the HUD approval list—if HUD approved a community for FHA loans, the VA assumed it was a safe bet, too. As we all know, that story did not have the happiest of endings, and it turned out that HUD had made some very bad bets for which the VA paid a hefty price. After the crash and subsequent economic recession, the VA decided to undertake its own more stringent approval process. Following this policy change, HOAs and condo communities which were approved by HUD for FHA loans were no longer automatically qualified for VA loans. Many HOAs are still not aware that they must be separately VA-approved, leaving many vets unable to purchase in these communities.
The goal of the VA approval process is to ensure the HOA is properly run so that the unit will not lose value. Here are some of the things the VA checks for when determining whether or not to loan in HOA and condominium communities:
- 50% or more of the units must be owner-occupied (not rented out)
- No more than 15% of units behind on HOA dues
- New construction areas must have 75% of units sold (to ensure the HOA is self-sustaining)
- Legally sound founding documents and bylaws
- No age restrictions (for instance, those found in senior living communities)
- No restrictions on foreclosure or re-selling
- Plans for future renovations and maintenance
- Copies of budget
- Adequate reserve funding
- Copies of management agreements
- Engineer verification that the units are structurally sound with at least 10 years of useful life remaining on the roof, plumbing, electrical, heating, cooling, and other essential elements
- Statement attesting that there are no current special assessments or pending lawsuits
- Financial statements no older than 2 months
- And, yes, Proper Insurance
This certification process takes one to two months and must be resubmitted every two years. Luckily, the application is fairly straight-forward; there is no need for a lawyer in most cases.
Remember that the VA seeks to loan in communities that are likely to retain their value. That is why proper HOA insurance is a key part of being approved for VA loans. Without the right insurance, the VA views the community as high risk—one act of negligence, one disaster, one special assessment, or one disgruntled employee could bring the HOA to financial ruin. Having the right kinds and amounts of insurance is a must for any HOA that wishes to serve its local veterans.
About Scott Litman Insurance Agency
At Scott Litman Insurance Agency, we are dedicated to protecting HOAs like yours. We have a unique understanding of the industry and the common risk exposures that you face in your daily operations. In fact, we find that 90% of the policies we review are missing coverages that violate the Covenants, Conditions, and Restrictions (CC&R), exposing the board, HOA and management to lawsuits – which is why our comprehensive policies are tailored to meet your specific needs at competitive prices. For more information about our products, contact our experts today at (818) 879-5980 ext. 201, or fill out our online form.