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.