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Title restrictions are entries on a title deed that prevents the sale or transfer of a property in some way. They can be conditional based on specific occurrences or they can be absolute. They are most often encountered in newer properties that are in some way communal, like a condo or duplex.
Some condos have a clause in their paperwork that is called the right of first refusal, this is essentially the condo version of a homeowner’s association, and it gives the association the option to buy or lease your unit before selling the unit is approved for the buyer.
In general, the VA will not restrict your rights to sell your home if you decide you need to. The VA does not have an early-exit fee or a prepayment penalty, regardless of how soon you sell your home.
The Department of Veterans Affairs will not guarantee a home loan for a property that restricts your ability to freely sell the property. According to the VA, they “may guarantee a loan on which a title restriction limits the sale, lease, or occupancy of the dwelling to persons based on age, including a prohibition against the permanent occupancy of the dwelling by children, provided such restriction complies with applicable Federal law… VA may refuse to approve a property with an age restriction if its operation would work an undue hardship upon the owner in the case of sudden, unforeseen events or be likely to result in an increased risk of loan default.”
Buying a Condo
Condos are good for a single family that does not need as much space. They are cheaper to purchase and usually, the HOA manages the maintenance of the complex. They also can have amenities that make them an attractive option, like pools, a clubhouse, a gym, and more. You can buy a condo with the VA loan, but the process is slightly different than if you were buying a free-standing home.
Since condos so often have title restrictions of some kind, if you want to buy a condo, the VA has to approve it first. The VA maintains a list of approved condominium complexes throughout the country to make this easier for you.
If the condo you want to buy is not on the list, your lender can submit paperwork to the VA to try to get it added to the list; this is a complicated process. After your lender submits the paperwork, the VA will go through the condo’s documents and policies; it is important to keep in mind that this process can take some time.
One of the requirements the VA has for a condo is that at least 50 percent of the occupants are the owners, not renters, and that at least 75 percent of the community has to be up to date on their HOA payments. If you are interested in a recently built condo, the VA will not approve it until at least 75 percent of the units have been purchased by others.