Financing with a VA loan covers more property types than homes and condominiums. Qualified veterans and service members can use a VA loan to purchase a property that has up to four one-family units.

The occupancy requirements for these types of properties are the same as with single-family units, and a borrower must certify their intent to live in one of the units as the primary residence.

Minimum property requirements (MPRs) for multi-unit VA loan purchases are different because the property has more living spaces to examine. The VA MPRs change for buildings with more than one unit simply because there’s more housing.

Each individual unit on the property must be private and accessible. There are exceptions to this rule, mostly related to setting up utilities and ensuring access to them for maintenance and repairs.

Although the VA lender’s guide states that every living unit must have independent utility services, shared water, sewer, gas and electricity lines, and water connections are permitted, so long as:

• There are separate service shut-offs for each unit;
• Easements or covenants protect water connections, and the VA approves of a maintenance agreement; and
• Legal provisions ensure and protect access to utilities for repairs, even if passing through other living spaces.

Some shared spaces on the property are permitted. The building can have a common facility for laundry or storage. Heating equipment for all units can be co-located in a single space. But when it comes to the individual privacy of each unit, VA rules require separate and self-contained spaces for each living space.

• Can you use a VA Loan for a Multi Family Home?
• What are some Guidelines to Purchase Multi-family Homes with a VA Loan
• VA Loan Application Process for Purchasing Multi-family
• How to use A VA Loan To Buy A Duplex or Multi-Family Unit
• What are the General VA Loan Requirements
• Buying A Duplex With A VA Mortgage
• Can you use a VA Loan more than one Time?
• Can I buy a Million Dollar Home with a VA Loan?
• What are the Benefits of VA Loans
• Can you Rent your House if you have a VA Loan?
• How many Properties can you buy with a VA loan?
• Can I use my VA Loan to buy Commercial Property?
• Can You Buy a Multi Family With a VA Loan?
• Does VA Allow Multi Unit Properties?
• Joint VA Loan Multi Family
• How Long do You Have to Occupy a VA Loan Home?
• VA Loan Limits 2021 Multifamily
• VA Construction Loan
• Using a VA Loan For Real Estate Investment

Can you use a VA Loan for a Multi Family Home?

The current Coronavirus pandemic leaves a lot of questions about the effect on the real estate market. But, one common opinion is that multi-family investing can offer a reprieve from economic disturbance for real estate investors. The reason is that multi-family properties offer less risk due to having more than one unit.

Read Also: Fighting Debt With Debt: America’s Penchant For Personal Loans

What most people don’t know—is that you can purchase multi-family properties with a VA Loan. It’s an incredible opportunity for seasoned investors or even first-time homebuyers, so make sure you don’t pass it up!

When you’re researching properties to purchase, know your costs! Your mortgage payments include principal, interest, taxes, and insurance, but that’s not all you need to consider.

It’s important to also include factors like utilities, estimated maintenance costs, vacancy, capital expenses, and property management. Having more than one unit means an increase in all of these!

You need to know your potential rents. This helps you (and your lender) determine if it’s a good purchase. Location is a huge factor in rental amounts, so make sure to research locations.

What are some Guidelines to Purchase Multi-family Homes with a VA Loan

First, to finance a multi-family property with a VA loan, the borrower must occupy one of the units within 60 days of closing. This is the same rule that applies to single-family homes.

Even though you are required to live on the property, the opportunity lies in renting out the remaining units to cover your mortgage payments.

If there’s one veteran borrower, the property can only have up to four units. So, if you were thinking about doing a VA loan for a 100-unit apartment complex–that’s not possible, but there’s a way to add more units.

By using a Joint VA Loan, two veterans can purchase a property together. Because it’s two borrowers, the VA allows for six total units. This includes four residential units, one business unit, and another unit that is joint ownership.

Per the norm, the VA requires the property to meet minimum property requirements to be financed. These minimum property requirements ensure that the property is safe and livable. One of these requirements is that each unit must be private and accessible.

Shared water, sewer, gas, and electricity are okay provided:
• The property has separate service shut-offs for each unit.
• There are easements/covenants protecting water connections and VA approves of that agreement.
• Ensure the units have legally protected access to utilities for repairs (even if it’s passing through other livings spaces).
• Shared spaces like laundry and storage are permitted by the VA.

VA Loan Application Process for Purchasing Multi-family

Though the process can be similar to using a VA loan for purchasing a single-family home, there are some differences. Unlike single-family, the VA can allow rental income from vacant units to be considered, but you must prove:
• That you, the borrower, are an experienced landlord/manager using one of these criteria:
o You must have owned multifamily in the past.
o You have prior experience managing multifamily.
o You have prior experience collecting property rentals.
o You were previously employed for any property role.

Once you have provided relevant documentation to prove one of the above roles, the VA will apply 75% of future rental income to the total income consideration. To use future rental income, signed leases must be in place before closing the loan.

Although the cost of a multi-unit inspection may be tempting to pass on, borrowers should have an inspection done on the property during escrow.

Having an inspection will provide information on any issues with the property, which can help you make an educated decision on your purchase and may assist with price/contract negotiation.

Using your VA loan to purchase a multi-family property is a great start or addition to your investing journey. Once you PCS to another duty station, you can rent out all units to generate more income. You can quickly build your portfolio and have less financial risk–it’s a win-win.

How to use A VA Loan To Buy A Duplex or Multi-Family Unit

The most important thing to remember when considering your VA loan options to buy multi-unit properties (including duplexes) is that your participating VA lender will require certain compliance with VA mortgage loan rules (and lender requirements).

What are the General VA Loan Requirements

No property purchased by a VA mortgage can be located in certain natural disaster hazard areas such as Lava Flow Hazard Zones (zones one and two) and houses in Coastal Barrier Resources System zones. No property that is solely commercial and not residential also do not qualify for VA mortgages.

General VA loan requirements for all properties secured by a VA mortgage include the requirement that the home purchased with a VA loan be “primarily residential” in nature. The non-residential nature of a property must be “subordinate” to the use of the property as a home.

Some are confused by this rule, thinking that the VA won’t allow a mixed-use property to be purchased, or that the VA won’t allow you to buy a home that has some non-residential use. This is not true. The VA allows home loans for owner-occupied primary residences with between one and four living units.

That includes duplexes and multi-family homes. VA loan rules allows these properties to be purchased as long as the borrower certifies that the home will be used as the primary residence.

You don’t have to reside in the home every single day of the calendar year, but you are required to use the home as your main address within 60 days of loan closing.

Buying A Duplex With A VA Mortgage

Borrowers interested in buying a condo unit often learn for the first time that VA condo loans require the condominium project to be on or added to a VA approved list.

However, borrowers interested in buying a duplex do NOT have this requirement–the borrower is purchasing property that does not involve a group ownership arrangement, and duplexes don’t have a “VA-approved” list for this reason.

Owning a duplex does not make you subject to the same kinds of covenants and group responsibility for common areas, property taxes, and other issues.

The basic issues you encounter when trying to buy any eligible property with a VA mortgage are applicable for duplexes. You must agree to be an owner/occupier and you are permitted to rent out the unused living unit if you so choose, but you cannot be an absentee landlord. You must live on the property you buy with the VA loan.

Duplexes, like all other property you can buy with your VA loan entitlement, must be taxable as real estate, be affixed to a permanent foundation that meets VA appraisal rules, and must not be used as a commercial enterprise such as a bed-and-breakfast, Airbnb, etc.

A duplex must meet specific VA appraisal requirements including one that dictates that each unit has either independent utility services for each living unit OR have a shared water, sewer, gas, and/or electricity connection provided there are individual shut-offs for each utility service in each unit.

In all cases, VA loan rules are only one set of requirements that must be followed; state or local building code, health regulations, and other guidelines may apply above and beyond VA home loan rules.

Can you use a VA Loan more than one Time?

You’ve benefited once from a VA mortgage loan. But can you take advantage of this Department of Veterans Affairs loan program again?

The good news is, yes, you can get another VA home loan if you’re an eligible service member, veteran or other qualified borrower. Here are three ways this is possible:

1. Purchase a home with a VA loan, sell it and then buy another home with a new VA loan.
2. Refinance from one VA loan into another.
3. Have two or more VA loans for different homes at the same time.

So, are you eager to shop around for another VA loan? Before you begin the process, it’s smart to understand what’s involved and how entitlement works.

VA mortgage entitlement explained

VA loan entitlement is the amount of money the VA will guarantee on a home loan. This helps determine how much you’re allowed to borrow before needing a down payment. Entitlement protection encourages lenders to offer VA loans with lower rates, no down payment and easier guidelines to qualify.

The entitlement amount is usually either $36,000 or 25 percent of the loan amount up to the conforming loan limit; currently, $510,400 is the limit in most areas of the country, but it’s higher in some markets.

“Eligible borrowers in most parts of the country have a primary entitlement of $36,000 and additional secondary entitlement of $91,600. That adds up to $127,600,” says Sam Atapour, branch manager at Embrace Home Loans in Ashburn, Virginia.

When buying a home with a VA loan, some or all of this entitlement is used up in the mortgage. For instance, with a $200,000 loan, $50,000 (25 percent) of the entitlement is used.

Say you want to carry two VA loans. The math is simple: $127,600 minus $50,000 of entitlement used on VA loan #1 equals up to $77,600 in entitlement that can be used for VA loan #2.

If you currently have a VA home loan, you may request a COE Certificate of Eligibility to learn if you’re eligible to buy your next home with a VA home loan.

Second VA home loan scenarios

There are several ways you can capitalize on a VA loan more than once.

“First, you could sell your current home that has a VA mortgage and purchase another home with a VA mortgage,” says Atapour. “Because your first house was sold or is selling at the same time you buy a new home, your VA entitlement can be restored for the purchase of home number two.”

The second way is to refinance your existing VA loan into a new VA loan. This can be a good option if you want to lower your interest rate and monthly payment and/or tap into your home equity.

You can choose a VA streamline refinance (also known as an Interest Rate Reduction Refinance Loan, or IRRRL) or a VA cash-out refinance loan.

The third way is to carry two VA loans for two different homes at the same time.

Can I buy a Million Dollar Home with a VA Loan?

There is no stated loan limit on home price or loan amount with a VA home loan. Mortgages backed by the Veterans Administration (VA) actually come with no upper cap, contrary to what’s commonly believed about these loans.

Many eligible veterans opt for a conventional or jumbo loan when buying a high-priced home, when a VA loan could offer better rates and terms.

Or they settle, and buy a home within VA’s supposed loan limit.

But that might be a mistake. VA mortgage rates today are lower than any other loan type. And, lower-credit borrowers could be approved, even at high loan amounts.

What if you live in high-priced region – an area where $765,600 won’t cover the home you really want? You can buy that more expensive home, and use a VA loan to do it.

You just need to make a 25 percent down payment on the amount by which you are above the VA limit. This same principle applies to any home price. Say you wanted to buy a $1 million home in an area with a $600,000 local limit.

You would make a downpayment of $100,000.

• Sale price: $1 million
• Local VA loan limit: $600,000
• Difference: $400,000
• 25 percent of the difference: $100,000

VA loans for high-end homes can be very beneficial. The typical jumbo loan requires 20% to 40% down. In this case, the veteran gets a jumbo loan for just 10% down. And, the rate is likely lower than that of a jumbo loan.

These and other advantages should make veterans reconsider their lending options, even whey they are looking at homes well above the published VA loan limits.

What are the Benefits of VA Loans

The biggest benefits of a VA loan are the basic entitlement and guarantee, which essentially serve as a down payment on homes within the loan limit.

Thanks to these, private mortgage lenders are usually willing to offer much more favorable terms to people who qualify for VA loans, including first-time buyers and (in some cases) people with less-than-ideal credit scores.

But these aren’t the only pluses. Other attractive features include:

• No private mortgage insurance (PMI)
• Competitive and negotiable interest rates
• Lower closing costs
• An assumable mortgage (the buyer can take over the seller’s mortgage payments)
• The right to prepay the mortgage without penalties

In addition to these advantages, veterans have access to cash out loans up to 100% of their home’s current value. Qualified applicants can use the cash to pay off debt, make home improvements, pay for college, or any other purpose.

Interest Rate Reduction Refinance Loans (IRRRL) are also available, if at any time in the future rates drop after the home is purchased. These loans require no income documentation, bank statements, or even an appraisal.

Collectively, these benefits often help active service members and veterans obtain mortgages that would otherwise be beyond their reach.

Unfortunately, a fair number of potential borrowers are either unaware of these benefits, don’t realize that they are eligible for them, or fail to take full advantage, often because they’re so focused on the “here and now” that they spend little or no time doing online research or talking with current and former service members.

Can you Rent your House if you have a VA Loan?

A Permanent Change of Station (PCS) from one base to another can create the opportunity for VA borrowers, under the right circumstances, to rent out their vacated VA loan homes and get VA loans in their new military towns. 

“PCS’ing” is military speak for moving, and it can happen on the spur-of-the-moment for many active duty servicemembers. Homeowners often have to pack up and get out quickly. A fast solution for what to do with that empty VA loan house is often in order.

Renting out your home financed with a VA loan is an option. If done by the book, the rental income can be used to offset the existing VA mortgage payment.  

As a rule, VA loans are not used to purchase income property due to the owner-occupancy rule. But, once you’ve lived in the home, it is okay to vacate and rent out the home. PCS is a fine reason to exercise this right. 

Additionally, it’s possible to have two VA loans at once as long as the homeowner has enough entitlement, qualifies with income and credit and meets the VA requirements for subsequent use of home loan benefits.

If you’re planning on renting out your vacated house and getting a second VA loan, there are a few conditions you should know about:

• It’s okay to have two VA loans at a time as long as certain conditions are met
• Rental income offsets the existing mortgage debt, for purposes ofyour new loan analysis
• A copy of the lease agreement is needed
• Monthly rental income should be more than the monthly mortgage payment

Working with experienced real estate and mortgage professionals who understand the VA loan process can help make the transition during PCS season a smooth one. For more information about PCS and VA loans, contact a loan officer experienced with VA loans.

How many Properties can you buy with a VA loan?

Home ownership is part of the American dream, and that’s no different for members of the U.S. Armed Forces. U.S. Department of Veterans Affairs (VA) Home Loans have helped make this dream a reality for nearly 22 million veterans and service members since 1944.

Once approved by the VA, these loans are provided by private lenders (banks and mortgage companies) and typically do not require a down payment or mortgage insurance because the VA guarantees a portion of the loan against loss, allowing the lender to provide more favorable terms.

Though the VA does not require a minimum credit score, most lenders do use credit score benchmarks as low as 620 making the loans easier to obtain for service members. Additionally, military buyers do not have to be first-time home buyers and can reuse this benefit.

With that in mind, VA Home Loans are meant to help veterans and service members obtain permanent housing. So, there are conditions on the types of properties buyers can purchase – you won’t be buying a farm or vacation home in Italy with a VA Home Loan.

Here’s a closer look at what can and can’t be purchased with a VA Home Loan.

VA Home Loans can be used to purchase:

• An existing home, or a condominium or townhouse in a VA-approved project. For condos or townhomes, the entire complex must be approved by the VA before the buyer can receive a loan for one unit.
• A multi-unit property (up to four-plex), provided the buyer occupies one of the units. If more than one veteran is buying, then one additional unit can be added to the four. Additionally, if rental income from the property dictates whether or not the veteran can qualify for the loan, then the veteran must show that he or she has the background needed to be a successful landlord and have enough cash reserves to make payments on the property for six months without rental income.
• A manufactured (mobile) home or a modular home. Finding a lender to finance these types of homes can be difficult because they’re considered depreciating properties, although modular homes are more likely to appreciate – making finding a lender slightly easier. Additionally, manufactured and modular homes must meet certain conditions, like being affixed to a permanent foundation.
• A new construction. However, builders, plans, and building sites must be VA-approved, require several inspections, and the builders must provide at least a one-year warranty. Also, many lenders are hesitant to accept zero down financing for new constructions. Alternatively, veterans can obtain a non-VA Home Loan and refinance the home with a VA Home Loan once the building is complete.
• To simultaneously purchase and improve a home with energy efficient improvements. Improvements can include, but aren’t limited to, thermal windows and doors; insulation for walls, ceilings, attics, floors, and water heaters; solar heating and cooling systems; furnace modifications (not a new furnace); heat pumps; and vapor barriers.

VA Home Loans cannot be used to purchase:

• Property in a foreign country. Homes purchased using a VA Home Loan must be located in the United States, its territories, or possessions (Puerto Rico, Guam, Virgin Islands, American Samoa, and Northern Mariana Islands).
• A cooperatively (co-op) owned apartment. Financing for these types of shared ownership properties expired in 2011.
• A farm. If purchasing a farm, there must be a residence on the property which the veteran will occupy.
• Vacant land. There must be immediate plans to build a home on the property, but new constructions come with their own set of financing red-tape with the VA Home Loan.
• Investment property or a second home. Remember that VA Home Loans are intended to help veterans and military find permanent housing – second homes and investment property are considered surplus.
• A business loan.

Can I use my VA Loan to buy Commercial Property?

Having outlined both the VA loan and mixed-use properties, the central question becomes, how can I use my VA loan benefits to purchase a mixed-use property?  

For borrowers, this could mean either a property that currently is mixed-use (e.g. it has active retail space) or is zoned in such a way that it could be converted into mixed-use space (e.g. convert a first-floor apartment into retail space).

The important fact to understand is that you can use your VA loan for these sorts of purchases, but borrowers will need to ensure that the property fits certain criteria mandated by the VA. And, these criteria are more restrictive than those required of a simple, single-family home purchase.

When a property is zoned for mixed-use purposes, the first hurdle is ensuring that the commercial space is no more than 25 percent of the property’s total floor space. This is likely enough space for a borrower to run (or lease space for) a business while still having plenty of residential square footage.

Next, the VA will look at the remaining economic life of the property. In real estate jargon, the VA wants to ensure that the property’s “highest and best use” remains residential for at least the life of the loan – generally 30 years. 

This is due to the fact that, as a mixed-use property, the current zoning indicates a municipal trend towards commercialization, whereas the intent of a VA loan is veteran-occupied housing.

Lastly, borrowers considering a VA loan for a mixed-use property still need to stay within the four-unit maximum allowed for all VA loans, mixed-use or not.

In sum, yes, borrowers can use their VA loans for a mixed-use property, but the property needs to meet at least the following criteria:

• No more than 25% commercial space
• Remaining residential economic life of at least 30 years
• No more than four units total

Mixed-use Impacts on Refinancing

Once a veteran has actually purchased a mixed-use property with a VA loan, the next consideration is whether the original loan can still be refinanced in the same way a loan for a single-family home would be.

Read Also: Here Are The Right Ways (And The Wrong Ways) To Use a Personal Loan

This needs to be addressed through the lens of two different loan products:

• Interest rate reduction refinance loan (IRRRL), a.k.a. “VA streamline” refinance: This VA-to-VA refinance option was designed to allow borrowers the ability to refinance their VA loans to a lower rate without needing to go through the hassle of current income verification, credit check, and property appraisal. Once a VA loan has been approved for a mixed-use property, borrowers can subsequently refinance with an IRRRL product with no additional qualification required.
• Cash-out refinance: On the other hand, if a borrower wants to complete a cash-out refinance of their existing VA loan, they’ll need an additional appraisal to confirm that the remaining residential economic life meets the 30-year requirement. In essence, the VA wants to ensure that the commercialization process in the area has not accelerated since the initial loan, which would indicate that a veteran wouldn’t actually be able to live in a property for the duration of the refinanced loan.

Can You Buy a Multi Family With a VA Loan?

The VA loan can be used to purchase up to a 4-unit house so long as it is owner occupied. These homes are also known as multi-family dwellings, and can be referred to as 2, 3, or 4 family houses. These homes are typically separated units with each functioning as a separate apartment.

Below are some basics to consider. It is important to note, though, that being a landlord is an entirely different topic and not for everyone. Also, like most investments and being a homeowner, there is risk, so it is important to do your homework.

1. Identify the area you are interested in buying: If you are interested in generating rental income it is important to look at areas that have low home values with higher rental amounts. The lower the cost of the home the lower your monthly payment amount. The higher the market rents are in the market then the more that your tenants will contribute to your payment and more of your money that you’ll keep.
2. Start looking at homes: Any realtor can set you up with Multiple Listing Services (MLS) updates based on your criteria that you tell them. Also, a good realtor knows markets that would best suit your criteria and can guide you in were to start looking. You tell them the area that you are interested in looking at, your price range, and types of homes (single family, 2, 3 or 4 family units). Then, you will start getting emails with homes that meet your criteria that if you want can start scheduling a viewing. 
3. Know your costs: The amount that you will be paying monthly is your principle, interest, taxes, and insurance is what you should focus on. You can use VA Loan Captain’s Payment Calculator and input different scenarios to see what your payment would be. There are also other costs such as water/sewer that I typically allocated $100 a month for. Also, there are costs for maintaining any home single or multi-family which you will need to consider and depends on the age and condition of the property.
4. Know your rents or potential rents: You can ask your realtor what the average rents are in the market that you are looking at. For example if average rents in the market for 1-bedroom apartments are $1000, and the units in the multi-family home that you are looking is average to what is available market, then you can use that to determine what you could charge if the units are vacant; or, what you could charge if there are tenants already in but paying a lower amount.
5. Other considerations: If you go this path you will be a landlord which is something that is a small part-time job and not for everyone. Having some basic knowledge on appropriately screening applicants and knowing the state law will go a long way. Basic items for screening applicants include doing a credit check and collecting and calling references.

Overall, using a VA loan to purchase a multi-family was a great experience that has now set me up with a solid cash flow positive investment. While this was beneficial, it required a lot of work and learning along the way.

Does VA Allow Multi Unit Properties?

VA loans cannot be used solely as investment properties. This benefit is intended for Veterans to use for their primary residence that they will occupy full-time.

However, most VA lenders allow buyers to purchase multi-unit properties with up to four units in total. The VA borrow must use one of those units as their primary residence.

As with many facets of the VA home loan benefit, be sure to check with your lender to verify your eligibility and to make sure your property meets all the necessary requirements.

Joint VA Loan Multi Family

So, if you were thinking about doing a VA loan for a 100-unit apartment complex–that’s not possible, but there’s a way to add more units. By using a Joint VA Loan, two veterans can purchase a property together. Because it’s two borrowers, the VA allows for six total units. This includes four residential units, one business unit, and another unit that is joint ownership.

Per the norm, the VA requires the property to meet minimum property requirements to be financed. These minimum property requirements ensure that the property is safe and livable. One of these requirements is that each unit must be private and accessible.

Shared water, sewer, gas, and electricity are okay provided:
• The property has separate service shut-offs for each unit.
• There are easements/covenants protecting water connections and VA approves of that agreement.
• Ensure the units have legally protected access to utilities for repairs (even if it’s passing through other livings spaces).
• Shared spaces like laundry and storage are permitted by the VA.

How Long do You Have to Occupy a VA Loan Home?

Veterans and active duty personnel who secure a VA loan have to certify that they intend to personally occupy the property as a primary residence.

Essentially, homebuyers have 60 days, which the VA considers a “reasonable time,” to occupy the home after the loan closes.

But some buyers may find that two months isn’t enough time – especially those on active duty or preparing to separate from service. Fortunately, the VA does allow homeowners in situations like these go beyond that 60-day mark, although occupancy at a date beyond one year is generally unacceptable.

VA Loan Limits 2021 Multifamily

VA loan limits determine how much a veteran with reduced entitlement can borrow before needing to factor in a down payment. VA loan limits vary by county and currently range from $548,250 to $822,375.

While qualified veterans with their full entitlement can borrow as much as a lender is willing to extend, those with reduced or diminished entitlement are bound to VA loan limits. Less-than-full entitlement is typically due to having one or more existing VA loans or because of default on prior VA loan.

The standard VA loan limit is $548,250 for most U.S. counties in 2021, an increase from $510,400 in 2020. For more expensive housing markets in the continental U.S., VA loan limits reach all the way up to $822,375 for 2021, up from $765,600 in 2020.

Remember, these limits do not represent a cap on borrowing. Veterans with their full entitlement can get as much as a lender is willing to give them without needing a down payment.

But veterans with one or more active VA loans or who have defaulted on a previous VA loan will encounter the limits, which will in part determine their zero-down buying power.

Let’s assume you’re currently using $60,000 of your VA loan entitlement and want to purchase a new home in a standard cost county ($548,250 loan limit). Because the VA guaranties a quarter of the loan amount, the maximum entitlement in this county is currently $137,062.

Generally, here’s how the loan limit calculations would look:

• $137,062 – $60,000 in current entitlement = $77,062 remaining entitlement
• $77,062 remaining entitlement x 4 = $308,250

That $308,250 figure represents how much you could borrow before needing to make a down payment. This veteran could buy with $0 down all the way up to $308,250. Purchasing above that mark would require a down payment equal to 25 percent of the difference between that ceiling and the purchase price.

VA Construction Loan

Building your dream home is a possibility with a VA home loan. But it isn’t always an easy road.

VA construction loans come with a unique set of challenges making it difficult for qualified borrowers to find lenders willing to do a true $0 down VA construction loan.

While the VA insures a portion of each loan, it’s up to individual VA lenders to determine what kind of loans they’ll issue. And the level of risk in new construction often causes many VA lenders to shy away.

Like many other lenders, Veterans United does not make VA construction loans to build new homes. What’s more common is getting a construction loan from a builder or a local lender and then refinancing that into a permanent VA loan. That’s something we do help Veterans with every single month.

As the homebuilding process wraps up, qualified borrowers can turn that short-term construction loan into a permanent VA mortgage.

When it comes to looking for a construction loan, it can pay to shop around. Talk with multiple builders and financial institutions and compare down payment requirements, closing cost estimates and more.

Some builders may have programs or deals, especially for veterans and military families. Do your homework and make sure you’re working with a legitimate builder with a track record of success and satisfied homeowners.

There are also restrictions about using the VA loan to purchase land. Borrowers can’t use a VA loan to purchase unimproved land with the goal of one day building a home on the site. There are traditional land loans for this purpose, but they typically require a down payment as well.

Veterans and military members who own the land they want to build on may be able to use any equity they have toward down payment requirements for construction financing.

Veterans who don’t already own land can often include purchasing it in their overall construction loan.

It’s important to understand that construction loans are short-term loans. That means it’s imperative for veterans and military members to start working on the permanent financing as early as possible.

Using a VA Loan For Real Estate Investment

The VA loan program is designed to help veterans and military members afford a home they intend to use as their primary residence. As such, you can’t use the program to buy an outright investment property, meaning one you plan to fix and flip right away or one you intend to rent out wholly.

That doesn’t bar you from earning money from a VA-financed property entirely, though. To use a VA loan for an investment property, you’ll need to meet the following three requirements:

1. You’ll need to have military service

To even consider a VA loan, property investors need to be sure they meet the program’s military service requirements. That means you (or your spouse if you’re co-buying) must be an active military member or veteran.

You also have to have clocked a certain number of days in the military, depending on when you served. The requirements are pretty specific based on whether your service was during wartime or peacetime, so check the charts at VA.gov to make sure you’re eligible before going further.

If you ultimately end up applying for a VA home loan, you’ll need a Certificate of Eligibility from the Department of Veterans Affairs.

2. You have to live on the property

Ever heard of a strategy called house hacking? That’s what you’ll need to do in order to use a VA loan for an investment property.

One of the more important requirements of a VA loan is that the borrower uses the home as their primary residence. That means if you plan to use the program to purchase a multifamily property, you’ll need to live in one of the units. You’ll also have to move into it within 60 days of closing on your loan.

3. Your property can’t have more than four single-family units to it

VA loans can only be used on properties with up to four units. If you go above this, your rental property won’t qualify for financing. That means duplexes, triplexes, and quadplexes are all fair game. But big apartment complexes? Definitely not.

If you and your property meet these requirements and you do plan to rent out some units for extra income, you may be able to use those rents to help you qualify for the loan.

To do this, you’ll need to have cash reserves to cover at least six months of mortgage payments and documented experience as a landlord. Meet both those qualifications, and you can collect 75% of rents previously collected on the property or 75% of the rent an appraiser projects you can ask for each unit.

Final Thought

For veterans looking to begin investing in real estate, using the VA loan to purchase a mixed-use property can be an outstanding option.  While this path is more restrictive than a standard home purchase, buying multi-unit properties with existing or potential commercial units is a path to home ownership and your first rental units.