One great benefit of the VA loan program is the ability to finance many different types of homes. Some buyers use VA loans to purchase single-family homes, condos and townhomes. Purchasing a multifamily home could provide many benefits, including a potential income stream for the owner. However, before looking for a multifamily home, there is much to consider about using a VA loan to buy one.
It is possible to use a VA loan to purchase a multifamily home with up to four units as long as at least one of the units is owner-occupied. The VA has occupancy requirements set in place, and will only finance properties the borrower intends to make their new primary residence.
Purchasing a multiunit property may provide Veterans with numerous benefits, including not having to pay for mortgage insurance. With no down payment requirements, Veterans could also find that these loans are ideal if they don't have available funds set aside for a conventional loan.
There are some VA multifamily loan requirements to meet in this process, but doing so may not be as difficult as it seems.
Condominiums and multiunit properties are different types of structures. In a multiunit property, such as a duplex, the buyer owns a portion of the front yard and backyard as well as the sides of the home.
With condominium communities, ownership is typically outlined in the Covenants, Conditions, Restrictions and Easements (CC&R) document, which differs from property to property. Additionally, other areas, such as green spaces, pools and driveways, are considered common property shared by all owners.
Borrowers must meet the following requirements to purchase a multifamily home:
VA loan guidelines for purchasing multifamily properties typically require a few extra steps compared to buying a single-family home. As you consider available properties in your area, you may want to keep these requirements in mind before you decide on what to purchase.
One of the most important VA loan qualifications for buying a multifamily property is that the owner must occupy one of the units. In other words, it is not possible to purchase a multifamily property and rent out all of the units. You have 60 days from the purchase of the property to move into one of the units. You can, however, rent out the remaining units as desired.
Rental income can be a valuable tool for Veterans looking to purchase a home. It is possible for VA borrowers to use rental income to qualify for a VA loan. For example, if you decide to purchase a duplex, the income you charge to the person renting the second unit can count towards your income when applying for your VA loan.
VA lenders may request rental history for the property to verify how much the expected income is.
Just as it sets eligibility rules for VA borrowers, the Department of Veterans Affairs also sets eligibility requirements for the homes known as minimum property requirements (MPRs).
Some of the MPRs include:
VA loan limits are different for multifamily properties than for single-family homes. Loan limits don’t apply to all VA borrowers. Rather, only Veterans that do not have their full entitlement are subject to meeting these limits when obtaining a VA loan.
Multifamily loan limits vary based on location. The VA has a national baseline that applies to most properties in the U.S. However, there are other locations that are considered high-cost areas, which means the VA loan limit will be higher.
| Type | Two Units | Three Units | Four Units |
|---|---|---|---|
| Standard Loan Limits | $828,700 | $1,001,650 | $1,244,850 |
| High-Cost Area Limits | $1,243,050 | $1,502,475 | $1,867,275 |
You can check here to see if VA loan limits apply in your situation.
The purchase of a condo with a VA loan requires that the condo community be on the approved VA list. That’s because Veterans buying a condo are buying into a group ownership agreement. That’s not the same as with duplexes.
Duplexes don’t have a group ownership arrangement of any type. There’s no VA-approved list for these properties and no covenants in the purchase agreement. There are also no shared common spaces or property taxes. That makes purchasing a duplex with a VA loan a bit easier as long as you meet eligibility and property requirements.
Buying a duplex with a VA loan is more like purchasing a single-family property in that you will own the building itself as well as the land it sits on. There are no common or shared areas where you need to split ownership with other owners. That makes obtaining a loan for a duplex easier for many Veterans.
It is technically possible to build a multiunit property with a VA loan, however, finding a VA lender to do so will likely be difficult.
Lenders may require borrowers to have extensive financial backing heading into these transactions. They could require that the borrower has experience as a landlord to secure the loan. Other restrictions such as having construction experience may also apply.
This is on top of the standard VA requirements that must be met. For example, the property must have a maximum of four units and meet the VA's MPRs. Typically, these projects are very expensive, and it’s hard to find VA lenders willing to offer these loans.
Understanding the rules for purchasing multifamily homes may help you make a decision about the best investment options for your needs. For additional insight and information to help you with your next steps, get in touch with a VA lender today.
