VA Loans and Investment Property

Veterans and service members who want to purchase multiunit, also known as multifamily, properties often see it as an investment opportunity. For many people, the idea of having tenants help pay some or even all of the mortgage is very appealing.

Multiunit Property Occupancy

The first major consideration with investment properties is occupancy. Veterans and active military members purchasing multiunit properties still need to meet the VA’s occupancy guidelines. These loans are for purchasing primary residences that borrowers intend to live in full-time.

VA buyers looking to buy a multifamily property will need to intend to occupy one of the property’s units as their primary residence. You wouldn’t be able to use a VA loan to purchase a multiunit solely as an investment property.

Mixed-Use Property and VA Loans

A mixed-use property is a building that is zoned for both residential and commercial use. These types of properties can pose a unique advantage to Veterans. However, it’s important to note the commercial space cannot exceed 25 percent of the total square footage. Limitations on the size of the commercial space ultimately come down to the VA’s Minimum Property Requirements.

As with other multiunit properties, the mixed-use space cannot have more than four units. The VA will also want the space to have a remaining economic life of at least 30 years, meaning the property must remain residential for the life of the loan.

Counting Rental Income

The second big issue is the rental income. Generally, the thought is something like this: You’re going to buy a duplex, either inherit tenants or quickly land some and then have them pay most or all of your mortgage every month.

And that’s a nice thought because if you can get a lender to count this future rental income, it is easier to qualify for the loan.

For example, if you’re looking at a multifamily property that carries a $2,000-a-month mortgage payment, being able to count $1,000 a month in rental income means you only have to qualify for a $1,000-a-month payment.

The problem is you might not be able to factor that projected rental income into the equation when it comes to qualifying for the loan. Policies and guidelines on this can vary by lender, so make sure to talk to your lender beforehand.

Veterans United Guidelines

Here at Veterans United, we wouldn’t consider future rental income as an effective income toward a mortgage unless you have a track record as a landlord. Typically, we would need to see documents showing a recent two-year history as a landlord or property manager.

In addition to the two-year history, you’ll also need renters locked into a lease.

In terms of calculating the projected rental income, Veterans United currently uses the lesser of 75 percent of verified prior rent collected on the units or the appraiser’s opinion of the property’s fair market rent. VA buyers purchasing properties without existing tenants would need to have leases in place at closing.

Borrowers who qualify and want to count future rental income will also need six months’ worth of cash reserves in the bank. That’s six months’ full mortgage payments, including taxes, insurance, and any homeowner association dues.

Generally, you won’t need cash reserves for a multiunit property unless you want to count that rental income.

Every homebuyer’s situation is different, especially when it comes to purchasing multiunit properties.

Talk with a Veterans United VA Loan Expert at 855-259-6455 for a closer look at your specific scenario.