VA loans are some of the most beneficial loan products for eligible borrowers.
Available to U.S. veterans and their immediate family, these loans offer a low-downpayment option and can even be secured with no downpayment whatsoever. This makes them perfect for borrowers who want to purchase with a low initial cost. They also have lenient qualifying requirements, and can bring excellent terms for the borrower.
The vast majority of VA loans are for purchasing a singe-family home. This makes perfect sense, as the loans (which are supported but not made by the VA) are designed to encourage homeownership among veterans.
They can also be used to purchase an income-generating property, While you can’t use it as an outright investment loan, there is a way to use VA loans to purchase a multiunit property. Using a VA loan, you can purchase a property with two, three, or four units, giving you the chance to earn an income off your home purchase.
This article is based on two specific aspects: 1) VA loans and 2) multiunit properties. First, let’s consider the benefits of a VA loan…
Advantages of a VA Loan
These loans provide convenient and affordable access to home loans for qualifying veterans and their family members. Most notably, VA loans can be secured with a small downpayment, and in some cases they can even be issued with 0% down. This makes it one of the few loans that can be used despite having no downpayment. (The other is a USDA loan, but these are only available for purchasing homes in certain rural and suburban areas.)
Benefits of Owning Multiunit Properties
The other aspect of this article is a multiunit property. Multiunit properties are desirable both as a personal home and an investment. Whether you occupy one unit or live miles away, multiunit properties can bring multiple rent checks every month while reducing the chances of a property sitting completely empty, which means no income whatsoever.
With only one property to care for, one property to maintain, you can receive up to four rent checks a month. Also, if one tenant leaves, you still have other units (as many as three) generating rent checks. This reduces the chances of receiving no monthly income from the property.
Rules and Requirements for VA Loans on Multiunit Properties
Lenders Set Credit Requirements
One of the most important aspects of researching loan products is credit requirements. You need to know your own score, and you need to know what products are available in your credit range. For VA loans, there is no set credit requirement. The VA does not say that borrowers need a certain credit score; instead they leave it up to the lenders and lending institutions to decide. Most VA loan applications, however, will not be hung up because of credit scores.
To qualify as a VA loan, the multiunit property being purchased needs to meet a specific set of standards. Lenders can alway implement more requirements and limitations, but these are the basic rules set by the VA.
These requirements include a variety of details that encompass the layout of the property. For example, there needs to be adequate space between buildings, and the property must be in an area zoned primarily for residential use. Access from a street and direct access to all units (without going through another unit) are basic requirements as well. Separate utilities, water supplies, and bathrooms for each unit are all required.
When using a VA loan, you can only purchase properties with four units or less. This allows for the purchase of duplexes, triplexes, and four-unit properties, but if there are five or more units, you can’t use a VA loan. There are certainly lending options available, but these are usually commercial loans and don’t come with the same benefits of a VA loan.
The Loan Amount
Loan limits for VA loans can be a little complex, at least compared to other loans that have a simple maximum that you can’t go over. VA loan limits are based on the “entitlement” system. Essentially, if you have full entitlement, there is no limit to how much you can borrow. However, the lender will set limits on how much is available, similar to all other loans.
Eligible veterans and their survivors with full entitlement no longer have limits on loans over $144,000. You will have full entitlement if you have never used a VA loan or have repaid a previous VA loan in full and sold the property on which the loan was written. Also, if you used your home loan VA benefit but has a foreclosure or short sale, and have repaid all the required payments, then you are likely eligible for VA support on your loan.
VA loans, of course, do not automatically bring unlimited borrowing potential. There are limits to these loans, and they generally parallel the limits set by lenders on other forms of financing.
There is one important and essential requirement we need to discuss, one that will significantly impact your decision to use VA loans on a multiunit property. If you are going to purchase a multiunit with a VA loan, you have to live on the property. You don’t have to live on the property forever, but you do need to occupy at least one unit for a specific timeframe, usually about one to two years.
These loans are meant to support homeownership among veterans, not investment purchases. Therefore, the VA requires that you live in one unit for a given period. Once this period is over, however, you can move out and turn the entire building into a complete rental property.
This is a great way to start an investment portfolio, as you can, in one transaction, purchase a home for yourself as well as properties that will generate an income.
The Right VA Loan is Waiting for You!
If you are considering a VA loan for a multiunit property, let us help. Because they are unique, this can become a complex purchase, so it’s important that you work with an experienced and knowledgable team.
Contact us today and let us help you secure a VA loan for your multiunit-property purchase.