Yes. It’s not just the standard single-family detached home that is eligible for USDA financing. Those contemplating to live in a condo, a townhome or a planned unit development can buy a unit using a USDA-backed loan. What are the requirements needed for your condominium unit to be financeable by the USDA?
USDA Condo Requirements
The condo has to meet the minimum property requirements of the USDA for it to be eligible for financing. It is the lender who will ensure that such property is in accordance with the USDA’s property standards.
The USDA defines condo projects as multi-unit buildings consisting of individually-owned units and governed by a homeowners’ association. All common areas in a condominium project are owned by all unit owners.
There are some condo projects that consist of detached or attached single-family dwellings. The HOA is responsible for the maintenance of the exterior of such dwellings in addition to the common areas.
- For a unit in a condo project to be eligible for a USDA guarantee, it must meet the requirements of the U.S. Housing and Urban Development/Federal Housing Administration, the U.S. Veterans Affairs, the Federal Home Loan Mortgage Association (Freddie Mac), or the Federal National Mortgage Association (Fannie Mae).
- The lender will determine the “acceptability” of a condo by way of a representation and self-certification of project approval. When the lender submits to the USDA Rural Development a conditional commitment for loan note guarantee, it is deemed that the condo meets the requirements of each entity above.
- The lender is required to keep proof, and make this available for verification, that it has reviewed the condo documentation that supports approval by either Fannie or Freddie, VA, or HUD/FHA of the condo project.
- In underwriting the loan, the lender will consider the borrower’s capacity, credit and collateral.
- The borrower is responsible for obtaining a homeowner’s insurance or flood insurance, as applicable. For the lender, it must ensure that the HOA secures adequate flood and hazard insurance for condo buildings in the Special Flood Hazard Area (SFHA).
- Homeowners’ association fees (HOA dues) will be included in the calculation of the borrower’s total debt-to-income ratio.
Site Condominiums Eligibility
These are condominium complexes that resemble the usual single-family detached homes. Called site condominiums, a project approval for such projects may not be required if (i) the single-family totally detached unit is encumbered by a declaration of condominium covenant or a condominium form of ownership, (ii) the unit is completely detached and has no shared garage or other buildings, and (ii) the unit is the entire structure, air space, and site.
Timeshares, condominium hotels, houseboat projects, multi-dwelling unit condos where an owner may hold title to more than one units by a single deed and mortgage, investment securities, community apartment projects, condominiums subject to litigation, and a condo project with a restaurant, spa or other non-incidental operations are not approved by the HUD/FHA, VA, Fannie or Freddie Mac standards. Consequently, these types of condo projects are not eligible for USDA loans.