The VA home loan helps veterans purchase a primary residence home; in other words, a home for you to live in, rather than purchase as an investment. This doesn’t mean that you can’t get around the rules, though. Many veterans buy a single-family home and follow the VA rules to a ‘T.’ Others buy a multi-family home, which contrary to popular belief, also meets the VA guidelines.
The One Rule
The VA allows veterans to purchase a multi-family home with no money down. The one rule, though, is that they must live in one of the units. This makes it an owner-occupied property. What you do with the other units is up to you. If you want to rent them out, you can, and you won’t violate the VA rules.
The Minimum Property Requirements
Another area that you will see differences with the multi-family home is the minimum property requirements. The VA has MPRs for any loan that it insures. This helps the VA know that the home is in good condition and will be worth something should the veteran default on the loan.
Because multi-family homes have more living space, there are more MPRs that the home must meet:
- Each unit must have its own entrance and access, year-round. In other words, you shouldn’t have to walk through one unit to get to another; each one should have their own entrance.
- The units can share utilities, but each unit must have its own water shutoff, gas, and electric shut off.
- The units can share a laundry facility.
- The utilities can also be located in one central area as long as each unit has access to it.
In addition to these MPRs, the units must meet the standard MPRs, which include:
- All utilities must be working.
- The roof must be in stable condition.
- The drinking water must be safe.
- There must not be mold or mildew in the basement or crawl space.
- There must not be any pest damage.
- There must be adequate living space for everyone.
- There must not be any lead based paint.
The ‘Extra’ Rules
VA loans have flexible guidelines, especially when it comes to verifying your income. If you buy a multi-unit property, though, you may undergo stricter scrutiny.
Lenders need to know beyond a reasonable doubt that you can afford the mortgage for the multi-family unit. Because this will cost more than a single-family home, in most cases, you may need to prove that you have cash reserves.
Cash reserves are money you have set aside in a savings account, a money market account, or any other liquid account. If you find that you can’t make your mortgage payment with your standard income, you can fall back on your cash reserves. This way you don’t fall behind on your VA mortgage payments.
Many veterans assume they can use the rental income that they make from the other units to qualify for the loan, but that’s usually not the case. The VA lender must be very choosy when including rental income. Typically, you must prove that you have adequate experience as a landlord. You may also need to prove that you have an executed lease in place even before you close on the home. This way the lender knows that you have tenants lined up and ready to move into the home.
VA financing is a great way to buy a multi-family unit with no money down on it. If you are thinking of getting into real estate investments, you may want to look into your VA benefits. It’s a great way to get you started, helping you to earn rental income on a property that you live in as well.