Chapter 3 of the VA Lender’s handbook is all about the VA loan and the Guaranty that goes with it. In the last article, we talked about the maximum loan amounts available for VA loans and established that usually the only restriction is the reasonable value of the home as determined by the official VA appraisal. However, there are plenty of other rules that determine whether a borrower can use a VA loan to purchase a property. In this article, we’ll be discussing the occupancy requirement of the VA loan program and how it can be fulfilled.
The first thing the Handbook has to say is this: “The law requires a veteran obtaining a VA-guaranteed loan to certify that he or she intends to personally occupy the property as his or her home.” In other words, the VA will not guarantee any loans that the veteran is not using to purchase a property that he or she will use as their primary residence. To fulfill this requirement, the veteran must either already live in the home (such as in a refinance), or certify his or her intent to move into the home within a reasonable time after closing. This requirement is in place for every single VA loan type except for IRRRLs. For IRRRLs, the veteran simply needs to certify that they previously occupied the home; they do not need to currently live in it. The Handbook provides an example of this. An active servicemember purchases a home with a VA loan then is transferred to a duty station overseas. The servicemember rents out the home then can refinance with an IRRRL because he previously occupied the home.
Above, we mentioned that the veteran must intend “…to move into the home within a reasonable time after closing.” The VA stipulates that a reasonable time is considered within 60 days. The only way a time frame longer than 60 days can be considered reasonable is if both of these conditions are met:
• the veteran certifies that he or she will personally occupy the property as his or her home at a specific date after loan closing, and
• there is a particular future event that will make it possible for the veteran to personally occupy the property as his or her home on a specific future date.
Even if the above conditions are met, dates further than 12 months in advance will generally not be considered reasonable by the VA. There are not many circumstances which warrant the purchasing of a home more than a year before you intend to move in. However, the veteran him or herself does not necessarily need to occupy the home within that time frame in order to satisfy the occupancy requirement. The servicemember’s spouse or dependent child can fulfill the requirement by occupying or certifying the intent to occupy the property in lieu of the veteran if the veteran is currently on active duty and cannot personally occupy the home within the required time frame. For dependent children, the veteran’s attorney or the child’s legal guardian must provide the certification. A spouse can satisfy the occupancy requirement if the veteran is unable to personally occupy the home due to any employment conflicts besides military service.
Servicemembers who are not married who are deployed are considered on temporary duty and can meet the occupancy requirement even if their deployment extends further than the “reasonable time”. Even if there is no spouse to occupy the home in the veteran’s absence, the occupancy requirement can still be considered fulfilled.
Often a veteran nearing retirement from the military will be looking to plan ahead and find a home to move to after retiring. In this case, as long as the veteran will be retiring in fewer than 12 months, there shouldn’t be a problem. The lender is instructed to verify that the veteran will be eligible for retirement on the date specified, and to carefully consider the veteran’s income after retirement. Retiring further than 12 months from the application date will not qualify.
Occupancy can also be delayed or interrupted if there are extensive renovations or improvements being made to the house as part of the loan. Veterans whose current work takes them away from their home a great deal or even the majority of the time will need to have a history of continuous residence in the community and there should be no indication that the veteran has established or intends to establish a primary residence elsewhere. Seasonal homes do not fulfill the occupancy requirement.