It is often asked whether the zoning for a property affects its eligibility to be purchased with a VA loan. As a VA loan is intended to be used to help a veteran obtain a residence, and there are safeguards in place to make sure that the VA loan benefit is not abused, the short answer is: yes, zoning for a property affects its eligibility to be purchased with a VA loan. But the long answer explains just how zoning affects eligibility, and what types of zoning will prevent a property from being eligible. A VA loan can be used for a variety of properties, such as a home in the suburbs or an apartment.
The VA has regulations that cover everything from mixed-use buildings to single-family homes. But what about using the VA loan benefit to purchase a multi-use property, such as a duplex or quadruplex? Those types of properties are eligible, but there is a stipulation: the veteran applying for the loan has to also be planning to use the property as their primary residence. So in the case of a multi-plex, one of the units has to be occupied by the veteran. While this still opens up some options for the veteran, it certainly makes starting a real estate business with your VA loan a little more difficult. But that’s because that isn’t the purpose behind the VA loan.
There are many properties that are zoned as both residential and commercial. Examples include condos that are located above a store on the first level. The VA has a way of determining whether those properties are eligible. The VA uses the principle of “remaining economic life” to classify those types of properties as eligible or not. Remaining economic life is a measurement of how much longer the residential aspect of the property will be open to be lived in. To qualify for a VA loan, the property must be determined to have a remaining economic life of at least 30 years (coincidentally the same amount of time that a typical mortgage will last).
Only an official appraiser can determine the remaining economic life of a property. There is actually a lot of work that has to be done before it can be determined. This is because a VA appraisal of the property doesn’t take place until you’re already approved for the loan, have chosen the property, and are working on finalizing the the loan. It’s smart to do your homework and find out if the property is going to have sufficient remaining economic life, but it cannot be officially determined until the VA appraiser examines the property. However, there is an option for houses that have a remaining economic life of less than 30 years. If the property does have a remaining life lower than 30 years, an adequate explanation of why the property is desired and why it is considered to not have the needed amount of remaining life is required. The actual remaining life must be specific and not arbitrarily established. The primary reason for this stipulation is to protect the veteran from being in a situation where their home is condemned or no longer sellable while they still have more to pay on their mortgage for the property. A financial vice like that could put a veteran’s family underwater.
Somewhat surprisingly, there is another factor closely related to the above that is not considered by the VA. On a property with mixed zoning (commercial and residential), the VA only considers the estimated remaining life of the residential portion of the property. But there are circumstances where the residential portion meets the 30 year requirement but the commercial portion does not. In this case, it is completely up to the veteran to make a wise purchasing decision. The commercial property might become less valuable or even unsalable. If that happens, you can expect to have a great amount of difficulty selling your home if you try to move. Being able to use your VA loan benefits to pay for both a home and store-front or other business is certainly appealing, but it is important to realize that the real estate markets, both commercial and residential, can be volatile, and 30 years is a long ways out.