Can you use a VA loan for a multiunit property? Yes, but there are certain conditions you need to meet.
VA loans can be extremely useful for qualifying veterans. Providing simplified access to high-quality mortgages, VA loans can be utilized with little to no downpayment, making them an attractive option for service members who want to quickly enter into homeownership.
But there is another use for VA loans: purchasing multiunit properties. While intended for basic homeownership, VA loans can be used to purchase a property with up to four units. This makes them an outstanding option for aspiring property investors.
Why Choose a VA Loan?
If you are an eligible veteran, you may be able to secure financing with little to no downpayment. The chance to purchase a home with 0% down is an attractive option if you have no current savings, often the reason veterans choose this loan.
Why are Multiunit Properties so Beneficial
There are many ways to create a collection of income-generating properties. So why choose a multiunit property? First of all, these properties allow for multiple renters for just one purchase. They also spread the risk of 100% vacancy, although you have to go through the process of finding each tenant, which obviously takes time, resources, and mental energy.
Having one property to care for and support (although there are still multiple units that need attention) is another motivation. In most cases, there is one roof to maintain, one sidewalk to clean, one lawn to mow. This can make a multiunit property more convenient, especially for beginning landlords.
Using a VA Loan for a Multiunit Property: The Rules
Occupancy Rules
The most important detail for someone using a VA loan on a multiunit property is the occupancy rule. When you purchase a property with a VA loan, you have to live in the home for a certain period. The loans are, after all, meant to encourage homeownership among veterans and service members, they are not designed for investment purposes. So whether you purchase a single-family home or a duplex, you have to live in the property immediately after you make the purchase. Eventually you can move out, but initial occupancy is required.
So if you use a VA loan for a multiunit property, you must live in one of the units right away. The other units, however, can be rented out. For example, if you were to purchase a duplex, one of the units must be occupied by you personally, while the other unit can be placed in the rental market.
This is an important requirement, and it could change your decision on using VA loans.
Minimum Property Requirements
VA loans have a variety of minimum requirements for properties. While lenders can enact even higher requirements, these are essentially the baseline standards for which a VA loan can be approved.
Basic requirements apply. The property must have adequate space between buildings, and the property must be in an area zoned primarily for residential use. The property must have access from a street, and there must be access to all units without the need to pass through another unit. (So if you have to pass through Apartment A to reach Apartment B, the building is ineligible.)
The utilities in your multiunit property must be separate from each other. However, if there are individual shutoffs the units may be able to share utilities. Each unit need electrical access, adequate water supply, and a working sewage system. (No shared bathrooms.)
Loan Limits
Note: Loan limits are subject to change. The information provided below is for general information only. For current and accurate loan limits, see a qualified lending professional.
Loan limits on VA-supported home loans vary widely; the same goes for loans on multiunit properties. When this article was written, if you have full entitlement, there is no official loan limit for VA loans.
Basically the VA guarantees to your lender that if you ever default on a mortgage that is over $144,000 (again, at the time of writing this article), the VA will compensate the lender for 25% of the loan amount.
Veterans will have full entitlement if they have never used a home loan benefit or repaid a previous VA loan in full and sold the property. If you used your home loan but had a foreclosure or compromise claim, and the loan was repaid in full, you would likely have full entitlement as well.
But this does not mean you can have virtually limitless borrowing potential. The lender will determine loan limits based on your credit history, income, and current assets.
Credit Score Requirements
The VA actually has no credit requirement for their loans. Lenders, on the other hand, are the ones that impose credit standards for these loans. The lender or organization servicing the mortgage is the party that determines the credit requirements for VA loans, so there is a range of scores that may apply. As with most loans, the better your credit, the greater you chance of securing a high-quality mortgage.
Using Rent to Help You Get Qualified
As you can see, a VA loan for a multiunit property can be extremely beneficial for your financial wellbeing. But qualification can be slightly more complicated, which leads many eligible veterans to choose less attractive options. Qualifying on the basis of income for these properties, which are often more expensive than single-family homes, can be tough.
However, our staff can help by using future rent as a part of your income. This can drastically increase your borrowing potential, and could help you secure better terms for the loan. Many other mortgage organizations, including organizations that specialize in VA loans, do not offer this option, severely limiting your options.
If you want to learn more about using a VA loan for a multiunit property, contact our team today. We take a common-sense approach to mortgage underwriting, increasing your chances of success and ensuring you have a fair chance at a property that meets your future goals.
