What Can you use a VA Loan for?
This is one of the most common questions that get asked about the VA loan program. The VA tries very hard to focus on the purpose of the program while making the benefits available to veterans in as many situations as possible. The purpose of the VA loan program is to help eligible borrowers obtain suitable housing at better terms than they could otherwise get. The focus here is “suitable housing”. The rule of thumb is that the property must qualify as a home and must be considered suitable to meet the veteran’s needs. Understanding the spirit of the program, you can probably hazard a guess at what sorts of purchases will be approved and what will not. You won’t be buying a vacant wal-mart with your VA loan, but you can buy a house in the suburbs.
The VA will not allow a borrower to purchase a purely commercial property using the VA loan program. While the property being purchased can have a commercial unit, there must be a residential unit as well, and the commercial unit is not permitted to have more than 25% of the total square footage of the property. This means that for borrowers who would like to open a small shop or office in their home, the VA loan program will work, but for borrowers wanting to open a larger store, workshop, or office, they will have to look elsewhere for funding. In this way, the VA loan program stays true to its purpose while still staying open to as many situations as possible. Many borrowers, however, are more interested in using their VA loan benefits to purchase a property that they can then rent out for a small profit. While not a bad idea, the VA has restrictions on what you can and cannot do.
For a single borrower (joint loans are a bit different), the property being purchased can have no more than four residential units, and the borrower him/herself must occupy one of the units. The borrower is allowed to open up the remaining units for rent, at whatever rate they feel is appropriate. So at most, you could buy a four-unit property, live in one, and rent out the other three. While certainly a nice pad on your income, the mortgage and cost of upkeep on a property that large would probably limit the profitability for awhile. It is also permitted to have one commercial unit with up to four residential units on the same property, as long as the borrower is living in one of the units as their primary residence. Joint loans can be different; if more than one VA-eligible borrower is using their entitlement on the VA loan, the maximum number of residential units increases accordingly, but there can still be only one commercial unit. Joining up with another VA-eligible borrower can be a good way to increase your income potential from renting units.
We’ve touched on it a bit already, but we need to clarify the VA’s occupancy requirement. With multiple units, the borrower must occupy one of them, yes, but no matter what the property is that is being purchased, the borrower must certify that he or she intends to occupy the home as their primary residence. The VA will not allow you to use their guarantee on a home or other property that you are not planning on using as a primary residence. You cannot use a VA loan for a summer home, vacation home, purely rental property, or anything other than what you can use as a primary residence. The VA are also sticklers about the word “suitable”.
You will run into trouble if you try to purchase a mobile home with a VA loan. In order to be considered suitable for a veteran, the property must have a permanent foundation.Some manufactured homes can qualify, as long as they are on a concrete foundation. If the veteran has special needs or a disability, the home must also be considered suitable to meet their needs – for example, if the veteran is in a wheelchair, a 3-story home is probably not a good call, even if it has a way to assist the veteran from going from floor to floor. For more details and to answer any specific questions, contact a VA-approved lender.