Deciphering the VA Lender’s Handbook Chapter 12 Part 3
Now we’re starting to get down into the good stuff. In the previous article, we talked about the VA MPRs (Minimum Property Requirements) that only apply to proposed construction, and in the article before that we gave a basic overview of the VA’s MPRs. If you haven’t read Chapter 12 Part 1 before reading this, you’ll probably want to go back and read it first, since this article builds on Part 1 and assumes that the reader already knows everything that Part 1 talks about. The basic MPRs are things that aren’t usually an issue, but can come up, especially if the borrower is getting creative with how he or she is using their VA loan benefits. This article will specifically cover the entity itself, nonresidential uses of the property, space requirements, and mechanical systems in general.
The first MPR listed is that the property must be a single, readily marketable real estate entity. In other words, you can’t use a VA loan to purchase more than one property at a time, or to purchase anything that is not considered real estate (e.g. a car). The next few MPRs have to do with any nonresidential uses of the property. The MPRs state that any nonresidential use of the property must be subordinate to the residential use. In other words, commercial use is acceptable, as long as the property is primarily residential. The appraiser uses two specific ways of determining whether this is the case:
- First, the nonresidential use of the property cannot impair the residential character of the property, and
- the nonresidential portion of the property does not exceed 25% of the total floor area. When the appraiser makes this calculation, he or she is required to include any storage areas or similar spaces that are integral parts of the nonresidential portion of the property.
It’s really the second of those two requirements that prevent most commercial use of VA loans, because it’s much more common to have a commercial space that has an apartment above it than a house that has a store space in the front. The basic MPRs also cover space requirements. The VA requires that each living unit on the property (usually only one), has enough space to reasonably accommodate living, sleeping, cooking and dining, and sanitary facilities for the number of occupants that will be living in the home. What is determined sufficient is mostly up to the appraiser. A single veteran with no children is going to be able to purchase a smaller space than a married veteran with 3 high school-aged kids. While some of the things we have mentioned so far may have surprised you, most of the rest of the MPRs are actually pretty obvious.
The VA MPRs in relation to the mechanical systems are fairly common sense; they must be safe to operate, be protected from destructive elements, have reasonable future utility, durability, and economy, and have adequate capacity and quality. Mechanical systems generally include things like power, lighting, HVAC, plumbing, and sprinkler systems. It should be fairly obvious why the VA would want those things free from destructive elements and be usable for the foreseeable future. Electrical systems, in particular, can pose a severe threat to the safety of the occupants if it is not up to spec. If you’re looking at buying an older home, it would be smart to ask the seller as many questions about the wiring in the house as you can think of. Now, the appraiser is not a specialized inspector; they won’t be able to tell you whether there are problems with any of the mechanical systems unless the problem is readily apparent through observation. If you would like a thorough professional inspection of one of the mechanical systems, you should hire a professional in that field to come conduct the inspection.
In the next article, we’ll get into the VA’s MPRs on heating, water supply, sanitary facilities, roof covering, crawl spaces, ventilation, and electricity. If you have any specific questions about the VA appraisal that aren’t answered in these articles, feel free to contact us at Low VA Rates and we’ll do our best to answer your questions.