VA guidelines

VA Loans and Investment Properties

August 10, 2011

VA Loans and Investment Properties

We get plenty of questions about VA home loans in the comments section of our posts. From time to time those questions are complex enough that we feel they deserve their own blog post to help others who might be in the same situation looking for answers.

Here’s one such reader question that came in recently;

“I am writing to ask about a scenario in where a joint or co-buyer, along with a qualified veteran, is able to get assistance in obtaining a VA-backed loan on the contingent that: A) The veteran remain as a resident up three(?) years on the property and B) the veteran is liable for any loss of payments on said property.”

“…my question is this:  Are there co-signers or property acquisition concerns who are willing to invest in a property they could not otherwise get without a VA guarantee?  If so, do you have a contact name I could reach out to?  I am offering my guarantee  to A) establish personal credit via debt reduction and B) I am interested in acquiring a property with multiple zoning capabilities to allow a business facility on the same property as the home.”

The answers are fairly simple once the specific nature and intent of the VA loan program are better understood.

The Department of Veterans Affairs set up the VA loan program specifically to help vets purchase a home intended to be used specifically as a residence. Veterans can purchase property with a co-borrower, but if that co-borrower is not themselves qualified to get a VA home loan, the VA does not guaranty or insure the non-qualified portion of the loan.

Only the veteran’s portion is backed by the VA. There is an exception–VA does allow a non-military spouse to co-sign or co-borrow.

The VA does not permit VA loans to be used for investment properties. It also does not allow loans on properties where more than 25% of the floor space is used for non-residential purposes. The nature of any commercial use of the property must be subordinate to the residential nature of the home.

The veteran must use the property as his or her primary residence. The Department of Veterans Affairs has the final say in such matters in cases of disputes or challenges to the regulation.

The basic answer to the reader’s scenario as stated is that the VA regulations would not allow a loan for a situation as described unless the borrower is using the property as his or her primary residence for the lifetime of the VA loan, the property uses no more than 25% of the floor space for commercial purposes, and the commercial use of the property must be secondary to the residential use of the home.

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  1. kara rueda

    I see that commercial properties are not covered in VA loan. What if we intend on living in property while renting second part of house ie duplex? Kara Rueda

    • Joe Wallace

      Hi Kara, thanks for your question. In general, the VA permits borrowers to purchase 1-4 unit properties and rent out the units the borrower isn't living in. The property must be the VA borrower's primary residence. Hope this helps!

  2. Giovanni

    I would like to purchase the house next door and move in as I am in the midst of a massive remodel on my current home (house next door is move in condition, slightly smaller sq ft but I just finished a divorce and it'd be fine) I paid off my current VA loan since there was no way I could finish renovations in time for refi inspector. Can I become eligible for a VA loan for the house next door. Lender quoting "guidance" saying no and requiring investment loan. I have no desire to rent either property but am trying to enjoy a large yard. Thank you in advance for any response and happy holidays.

    • Joe Wallace

      What specific guidance does the lender quote?

  3. Giovanni

    Mr. Wallace, First let me start by saying thank you for the reply. I appreciate the query even if you don't have time to get back to me again. I believe she said guidance from the V.A. Because I wasn't moving "over a certain number of miles", because the house was "smaller square footage" and because it "shared a property line." so they would have to consider it an investment property. I will say that they are consistent (I have called them three or four times trying to have this set up in advance to try and understand the process.) I e-mailed the V.A. and they just said it had to be my primary residence and if the lender had any questions they could call them . . . that was as specific as they got. I used them for my first house and they were swell. This time they sound irritable like I'm trying to get over. Again thank you and I hope your day is going very well.

    • Joe Wallace

      I would advise you to try a different lender--it sounds like the lender won't budge on issues the VA itself has no problem with, but since the VA can't force a lender to approve a loan application, you may do well to find one that will---it may be a question of that lender's own guidelines conflicting with your needs. The VA guidance may be perfectly acceptable to a different financial institution.

  4. Robert

    I have a house next to me that I want to buy.I have never used my VA loan before and I want to buy this house to keep In my family can I buy it or not.

    • Joe Wallace

      That would depend in a variety of factors including your credit scores, repayment history and other factors. The home you buy with a VA mortgage must be used as your main or primary residence.

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