VA Loans are an excellent way for U.S. military members, veterans, and their families to buy a home. VA Loans feature many benefits, including being easier to qualify for than a comparable conventional loan, as well as offering the ability to finance 100% of the home purchase. Once you have established eligibility for a VA Loan, you can begin the process of shopping for a new home using a VA Loan.
That said, there are some limitations and factors to consider regarding what type of home or property you can buy using a VA Loan. Although most single-family properties qualify for VA Loan use, there are a few exceptions that have been deemed ineligible by the VA. Read on to learn more about VA Loan property types and if your prospective property is among the homes that qualify for a VA Loan.
Benefits of a VA Loan
In general, VA Loans carry many benefits for home buyers, without having too many drawbacks. They are convenient, easier to qualify for than traditional mortgages, and affordable in terms of any fees and associated closing costs. You can even finance many of those costs into the loan. Affordability and accessibility are two of the biggest benefits of a VA Loan.
VA Loans usually also offer favorable loan terms with lower interest rates and lower monthly payments when compared to non-VA Loans. On top of that, there is no down payment requirement, making it easier for many servicemembers and veterans to buy a home. This feature is possible because the Department of Veteran Affairs backs a certain percentage of every VA Loan that is taken out. Finally, even though there is no down payment requirement, VA Loans are not subject to Private Mortgage Insurance (PMI), which is an expensive insurance program required by most lenders when the buyer makes a downpayment of less than 20% or the purchase price.
A VA Loan can be used to take out a mortgage on an existing home, build a new home, or add energy-efficient improvements to your current home.
There are some downsides to VA Loans. You will be required to pay a VA Loan funding fee when you use a VA Loan. This fee is used to help the VA cover the cost of potential loan defaults. This fee is waived for veterans who have a VA service-connected disability rating.
VA Loans also have some limitations, which we will cover in this article (primarily for which types of properties are allowed).
To use your VA Loan, you will need to establish eligibility, which is done with a Certificate of Eligibility. You can get this directly from the VA or have your lender request it from the VA.
VA Loan Minimum Property Requirements
First, you will need both an inspection and an appraisal on your prospective home before you can receive VA Loan approval for it. While these formalities may seem frustrating and excessive, they are there to protect you as a buyer, your lender, and the VA from completing the purchase of a home that is not up to standards.
VA Loan minimum property requirements are standard and nothing out of the ordinary. But they are an excellent way for the VA to ensure that your prospective home is worth investing in.
A Home Purchased with a VA Loan Must Be Used as a Primary Residence
The VA requires that the homeowner will use their prospective home as a primary residence prior to receiving VA purchase approval. In most cases, this means that you need to begin inhabiting it with 60 days of signing the loan. However, you can also petition for an extension to this deadline if necessary.
You can’t use your VA Loan to buy commercial property. It also can’t be used for a vacation home, second home, investment property, or any other kind of property for any other use beyond a primary residence.
There is one exception to purchasing a home as a rental property: you can use a VA loan to purchase a multi-family home of up to four units, provided you intend to live in one of the units as your primary residence.
The Home Must Be Livable & Safe
In terms of livability, your home needs to be deemed as having adequate space to comfortably accommodate all day-to-day living activities, including eating, sleeping, cooking, etc. All mechanical systems also need to be approved for both safety and quality, and that includes your furnace, water heater, and any other home system. These requirements are put in place for the general safety of the tenant as well as the well-being of the property itself.
Another requirement concerning safety is that the property has to be structurally sound and free of any hazardous defects such as leaking, rotting, and faulty construction. Direct access to the property is also necessary, and that means that both pedestrians and vehicles need to be able to get to the property in question without passing through another property. These parameters further serve to guarantee the safety and well-being of the property owner as well as their neighbors.
What Types of Property Can You Buy with a VA Loan?
While the minimum property requirements for VA Loans are non-negotiable, there are several different options as to what kind of property you can apply your loan to.
You may be asking yourself, “What can I buy with a VA Loan?”
By knowing what kinds of properties are eligible, it makes the task of searching for your next home a bit easier.
Single-family homes: Single-family homes are the most basic and most common option for buying a home with a VA Loan. This home is a stand-alone dwelling and not connected to any other house nearby.
Multi-family homes: If you use your VA Loan to buy a multi-family home, the VA will allow you to rent out the other spaces as you see fit. The only stipulations are that you must use one of the units as your primary residence, and the building cannot have more than four units.
Condominiums: Condos get the green light for using a VA Loan, but it is essential to make sure the development of the prospective condo is VA-approved before committing to it. This step is crucial because, without VA approval, you will not be able to use your loan to finance the condo.
Manufactured homes (including trailers of all sizes): Manufactured homes are technically allowed to be financed with a VA Loan as long as they are permanently tethered to the land that they are on. They also need to meet specific size requirements and have permanent facilities for daily living activities. Mobile homes or manufactured homes on wheels without a permanent foundation are not eligible for VA approval. However, while manufactured homes can be financed with a VA Loan, not all lenders will offer loans for these types of homes.
Modular homes: You can finance modular homes through VA Loans, but they have to be fixed to a permanent foundation. Additionally, they have to receive a state certification that they were constructed according to HUD guidelines. Again, each lender may have specific requirements for these types of homes.
New construction: Receiving VA Loan financing for new construction is not the most convenient option, but it is doable. The home will have to pass three inspections, and the builders must provide a one-year warranty on the house. This option can be more complicated when it comes to using your VA Loan. However, don’t let that be a deterrent for buying a newly built home. I recently purchased a new construction home using a VA Loan and the process wasn’t significantly more complicated than buying a pre-existing property.
Properties That Are Not Eligible for VA Loans
Naturally, there are a handful of housing types that will be outright rejected for VA Loans if you try to finance them using your loan. Anything that could be used for commercial gain is out of the question. As a basic rule of thumb, remember that VA Loans are intended to be used for the purchase of primary residences only.
Vacant land: Regardless of whether or not you intend to build a primary residence on a plot of land, VA Loans cannot be used to buy vacant land. There needs to be a home on the property already that you can use as a primary residence. For example, you can buy a farmhouse and the attached farmland with your loan as long as the farmhouse serves as your primary residence.
Multi-family homes larger than four units: When it comes to multi-family dwellings, four units is the maximum that you are allowed to finance with a VA Loan. The reason is that multi-family homes of this size are considered to be more of an investment property than a primary residence.
Vacation properties: Even though you might plan to use a vacation property exclusively for personal use rather than renting it for commercial gain, the VA will undoubtedly deny the purchase. While it may serve as your vacation residence, you can only use VA Loans toward financing your primary home.
Rental Properties: Again, you can only use a VA Loan for a primary residence. The only exception to purchasing a rental property with a VA Loan is when you purchase a multi-family residence, up to four units, and intend to live in one of the units.
Can You Use a VA Loan for an Investment Property?
The short answer to this question is no. VA Loans were created so that veterans have an accessible and affordable way to finance a new primary residence. Therefore, investment properties do not fit the bill for VA Loan use. Any property that would be used for commercial gain (i.e., shop space or business space) or any large-scale rental to a third-party will not be approved for VA use.
However, there is a minor loophole that can get you around this principle. You may use your VA Loan to finance a multi-family home of four units or less so long as you live in one of the units as your primary residence. This way, you can rent out the remaining units while still enjoying the benefits of financing the property through your VA Loan. Often the revenue from those rentals is enough to cover the full payment on the loan, making this a popular option for low- or fixed-income veterans.
Where Can I Learn More?
You can start with our VA Loan Guide. This explains the VA Loan, lists pros and cons, and discusses how to use the VA Loan to buy your next home.
If you are ready to buy a home, you can work with your real estate agent to find the right match for you. Just be sure to pay attention to the types of properties listed in this article to ensure your home will qualify for a VA Loan.
Finally, many lenders are qualified to process VA Loans, so you can work with your current bank or lender to buy a home using a VA Loan. However, I strongly recommend getting at least 5-7 quotes before buying your home. Interest rates origination fees, and other terms will vary based on the lender, your location, the home’s purchase price, and your financial details, such as credit score, credit history, debt to income ratio, and other factors.
Here are some lenders you can start with (or you can click on your state on the map below to find a lender in your area):
- Veterans United – Most Popular (they closed the most VA Loans in the U.S. in 2018).
- Quicken Loans – All Online Process – Easy to Use.
- NASB – Top 10 VA Lender – they do not charge an origination or application fee for VA loans.
- J.G. Wentworth – Great for refinancing a VA Loan.
Summing It Up
VA Loans are a versatile option that work for the majority of property types so long as you intend to occupy the property. When in doubt, your realtor or lender should be able to advise if a property is eligible early in the loan process.