Multifamily Home with VA Loan
Buying a multifamily home with the VA Loan Program is a great way for veterans to purchase a rental property that will provide income while allowing them to build equity.
Understand the Difference Between a Single Family Home and a Multi-Family Property.
There are two main differences between a single-family home and a multi-family property. First, a single-family home has one owner who lives there full-time. In contrast, a multi-family property has multiple owners who live there part-time. Second, a single-family home is usually purchased by a homeowner who plans to live there permanently. On the other hand, a multi-family home is typically purchased by investors who plan to rent it out.
Determine Whether You Qualify For a VA Loan.
If you’re interested in purchasing a multifamily property with VA financing, you should first determine whether you qualify for a VA loan. This will help you understand how much money you need to purchase the property and what type of mortgage you’ll use.
Multifamily Home with VA Loan Research and Analysis
When you're researching properties to purchase, know your costs! Your mortgage payments include principal, interest, taxes, and insurance, but that's not all you need to consider. It's important to also include factors like utilities, estimated maintenance costs, vacancy, capital expenses, and property management. Having more than one unit means an increase in all of these!
You need to know your potential rent. This helps you (and your lender) determine if it's a good purchase. Location is a huge factor in rental amounts, so make sure to research locations.
Know Which Types Of Properties Are Best Suited For VA Loans.
There are different types of properties available when purchasing a multifamily home with VA loan. If you’re looking to purchase a rental property, then you should choose one that has at least three units. This will allow you to maximize your return on investment (ROI).
First, to finance a multi-family property with a VA loan, the borrower must occupy one of the units within 60 days of closing. This is the same rule that applies to single-family homes. Even though you are required to live on the property, the opportunity lies in renting out the remaining units to cover your mortgage payments.
If there's one veteran borrower, the property can only have up to four units. So, if you were thinking about doing a VA loan for a 100-unit apartment complex–that's not possible, but there's a way to add more units. By using a Joint VA Loan, two veterans can purchase a property together. Because it's two borrowers, the VA allows for six total units. This includes four residential units, one business unit, and another unit that is joint ownership.
Per the norm, the VA requires the property to meet minimum property requirements to be financed. These minimum property requirements ensure that the property is safe and livable. One of these requirements is that each unit must be private and accessible. Shared water, sewer, gas, and electricity are okay provided:
- The property has separate service shut-offs for each unit.
- There are easements/covenants protecting water connections and VA approves of that agreement.
- Ensure the units have legally protected access to utilities for repairs (even if it's passing through other living spaces).
- Shared spaces like laundry and storage are permitted by the VA.
Learn About The Down Payment Requirements And Closing Costs for multifamily home with VA loan.
You’ll also need to consider the closing costs associated with the property. These fees cover things like title insurance, appraisal, legal fees, and other miscellaneous expenses. They can vary widely based on the type of property you buy and the location where you live.
VA Loan Application Process for Purchasing Multifamily Home with VA Loan
Though the process can be similar to using a VA loan for purchasing a single-family home, there are some differences. Unlike single-family, the VA can allow rental income from vacant units to be considered, but you must prove:
- That you, the borrower, are an experienced landlord/manager using one of these criteria:
- You must have owned multifamily in the past.
- You have prior experience managing multifamily.
- You have prior experience collecting property rentals.
- You were previously employed for any property role.
Once you have provided relevant documentation to prove one of the above roles, the VA will apply 75% of future rental income to the total income consideration. To use future rental income, signed leases must be in place before closing the loan.
Find Out More About The VA Loan Process.
You can use a VA loan to buy any type of property, whether it’s a single-family home, duplex, triplex, fourplex, or even a commercial building. However, some restrictions exist on what kind of property you can buy. For example, you cannot purchase a residential property that is located within 1 mile of a school or daycare center.
To keep things simple, we would love to introduce you to one of our recommended real estate agents and/or lenders that are well versed in all things VA Loans, and will be more than happy to guide you through the process to ensure you get the most bang for your buck! If you'd like an introduction, Click Here!