VA Loans: Does Zoning Matter?

VA home loans aren’t limited to properties in “traditional” house buying areas like suburbs or typical residential streets. Buyers can also purchase properties in urban areas and in city centers where a building might fall into different zoning than a neighborhood in the burbs.

Some VA loan applicants wonder if zoning can affect a VA mortgage loan application; after all, the VA requires the borrower to purchase property intended as a primary residence; is that still possible in an area with commercial zoning?

The short answer is yes. Veterans are allowed to apply for VA loans to purchase mixed use properties that include business spaces as well as living spaces. The basic rule is that the business portion of the property can take up no more than 25% of the entire floor space of the property. In many cases that is enough for a borrower to run a small business and live on the property as a residence.

Some buyers are concerned about purchasing buildings in mixed-zoning areas–they don’t want to run a business, they just want to purchase a home that happens to be zoned for both commercial and residential uses.

The rules for purchasing property in such areas differs a bit from buying a home in a residential-only area like a suburb. Because mixed use zoning can indicate a move toward complete commercialization of an area, the VA evaluates the “remaining economic life” of the property in question to make sure it is viable as a residence for at least the lifetime of the loan.

VA rules state that a property must have a remaining economic life as a residence for at least thirty years or more. If the property meets that criteria, the loan can be approved as long as the usual qualifications are met.

Once a loan is approved in a mixed-zoning area, the buyer can do a VA-to-VA refinance loan later with no problem; VA Streamline Refinancing requires no credit check or property appraisal so there are no re-qualifying requirements to meet.

If a borrower wants to get a cash-out refinancing loan, the property must be appraised once more–will it still meet the economic viability requirements if enough time has passed? Every property is different–the building must meet VA minimum property requirements for any cash-out refinancing loan application.