VA Entitlement and a Condo Project That Is Not VA-Approved
Your borrower is a veteran who receives VA disability compensation at the 10% rate. He has an existing VA loan of $180,000 on a condo that he now rents out; that loan remains outstanding. He wants to buy a $520,000 condominium as his primary residence with no down payment and has $28,000 in savings. His middle credit score is 690, DTI is 49% under the automated underwriting findings, and residual income exceeds VA guidelines by $210 per month. The condo project is not on the VA-approved list, and the HOA reports 55% investor ownership. The borrower asks whether he can use his remaining VA entitlement and close with 0% down. The 2025 FHFA conforming loan limit is $806,500.
1. Calculate the VA entitlement available and determine whether a $520,000 no-down-payment VA loan is possible.
Read the worked answer
Full VA entitlement is 25% of the FHFA conforming loan limit: 25% of $806,500 equals $201,625. The existing $180,000 VA loan uses 25% of that balance, or $45,000, leaving $156,625 of entitlement. A $520,000 loan requires 25% coverage, or $130,000. Because $156,625 exceeds $130,000, the entitlement is sufficient and no down payment is required from an entitlement standpoint. The veteran's 10% disability also exempts him from the VA funding fee. The 49% DTI is above the usual 41% VA guideline, but VA permits higher ratios when residual income is sufficient and compensating factors are documented; here residual income exceeds the guideline by $210. The loan still depends on property eligibility and underwriting approval.
2. Does the condo project status affect VA eligibility? What are the borrower's options?
Read the worked answer
Yes. VA generally requires the condominium project to be approved by VA unless a specific exception applies. A project with 55% investor ownership is likely to fail VA's owner-occupancy requirement, which is commonly 50%. The borrower should not be told the loan can close until the project is reviewed. Options include asking the lender or VA to review the project, confirming whether any single-unit or project exception applies, or using another product. FHA also requires condo project approval and would likely face the same owner-occupancy problem. A conventional loan may be possible, but it would likely require a down payment and possibly mortgage insurance. The borrower's $28,000 in savings may not be enough for a conventional 5% down payment plus closing costs on a $520,000 purchase.
3. What must you verify about the 49% DTI before treating the VA loan as approvable?
Read the worked answer
You must verify the residual income calculation, not just the total DTI. Obtain the VA residual income worksheet, document the borrower's disability compensation with an award letter, and confirm the income is stable and continuing. Verify all debts, including the existing VA loan payment, taxes, insurance, HOA dues, and any lease obligations. Confirm the automated underwriting findings and identify the compensating factors that support the higher ratio, such as residual income, savings, and credit history. Do not simply rely on the $210 residual surplus; show the calculation and keep it in the file. If the residual income or debts change, the loan may no longer be approvable even though entitlement is sufficient.