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VA Loans, Investment Properties, and Deployments

Investment Properties, Deployments and the VA Loan

What do VA home loan rules say about occupancy, deployments, and investment properties? These don’t sound like related topics at first, but believe it or not, the VA Lender’s Handbook, VA Pamphlet 26-7, has a lot to say about all three subjects and they do intersect.

Basically, the VA Loan program is designed for those who plan to live in the home they buy. Renting out unused portions of that home is permitted. Using the home primarily as a business is not. Buying a home and being deployed is not a violation of VA occupancy requirements, but buying one and never occupying it IS a violation of the loan agreement you’ll sign.

 

>> Interested in a no PMI, zero down payment possible home loan?  For a no-obligation, free consultation regarding your VA Loan eligibility, please go here.

 

VA loans are for qualifying service members, veterans, surviving spouses, and those who serve in what are referred to as “uniformed services” such as those commissioned by NOAA and those who serve as certain types of public health officials.

VA loans are sometimes approved with non-VA borrowers in a process known as a joint loan. VA occupancy requirements only apply to those using the VA loan program for the purchase–non-VA borrowers in the same transaction are not asked to honor the VA loan rules when not using a VA mortgage. Multiple borrowers can also apply when all applicants are using their VA loan benefits–in such cases all occupancy rules apply.

VA Loan Occupancy Rules

Occupancy is a critical issue for any use of your VA home loan benefit. VA purchase loans require the buyer to certify in writing that she will use the home purchase with a VA mortgage as the primary residence or have an eligible family member who can meet the occupancy requirement instead.

Occupancy is an issue because VA home loans and VA refinance loans are intended for owner-occupied homes and while it is possible to purchase a mixed-use or mixed zoning type property with a VA mortgage, the use of that home must be “primarily residential” and the non-residential nature of the property must be “subordinate” to use of the structure as a home first.

But military members get deployed, sent TDY, experience permanent change of station moves, or go to professional military education for prolonged amounts of time. How does this affect the borrower’s occupancy status?

The short answer is that it does NOT. The owner is expected to have military duty and you do not have to live in the house every single day you own it in order to be considered using the property as your home address.

Deployments, Temporary Duty (TDY)

VA Pamphlet 26-7 Chapter Three states, “Single or married servicemembers, while deployed from their permanent duty station, are considered to be in a temporary duty status and able to meet the occupancy requirement. This is true without regard to whether or not a spouse will be available to occupy the property prior to the veteran’s return from deployment.”

There is a bit of a grey area where PCS moves are concerned. Chapter Three does not directly address whether or not a PCS move complicates the VA loan for the owner.

However, there are hints of the VA’s position on PCS moves elsewhere in Chapter Three where “intermittent occupancy” is addressed. In order to be compliant on this issue, VA loan rules say the home secured with the VA loan must be reasonably near the borrower’s job.

Whether you can legally rent out a home you buy with a VA loan after PCSing out of the area is something you may have to review your purchase contract for–any fine print or stipulation in the contract will be legally binding.

If you want to fee you are safely within the VA loan rules for renting out the home, you can always consider refinancing the mortgage with a VA Interest Rate Reduction Refinance Loan (which generally must result in some tangible benefit to the borrower) as this type of VA refi requires you certify only that you have previously used the home as your residence.

VA Loans For Investment Properties

Why do people want to turn to VA mortgages to buy bed and breakfasts, Air b-n-b operations, and other things like them? The no-money-down VA home loan is one reason. VA mortgages also have no VA-required private mortgage insurance or PMI, which is another way to save money on the loan up front.

And then there is the comparatively low interest rate on the loan. Government-backed mortgages offer an advantage in this way since the government, in this case, the Department of Veterans Affairs, is promising the lender an offset in the cost of the lender’s loss if the loan goes into foreclosure.

Buying an investment property with no money down definitely DOES have an appeal to it. But the VA loan program is for residences only. It’s true that you can use a multi-unit home purchased with a VA mortgage as an investment property when you live there, too. But buying a house without intent to occupy? That’s not permitted with VA mortgages.

And that is consistent all the way down the line with VA purchase loans. Did you know you can buy a farm residence with a VA mortgage but that only the residential value of the property is considered for the loan? There is no extra money available to buy a farm business, and no appraisal valuation for the non-residence nature of the property.

The way many investors think about investment properties–to buy, rent out immediately, and never occupy? That’s the sort of thing VA loan rules are designed to prevent–the borrower purchasing a house they do not intend to live in. So in that sense, you cannot use a VA purchase loan to buy a bed and breakfast, an Air b-n-b operation, or a house you plan to rent out to someone else.

But you are permitted under VA loan rules to buy a multi-unit home and rent out the unused units you are not living in. This type of “investment property” arrangement is 100% acceptable to the Department of Veterans Affairs as long as the borrower or borrowers live in one of the units themselves.

You can legally rent out a duplex or townhome you buy with a VA loan in this way or a multi-unit home up to four living units. But what you generally cannot do is to use your VA loan to buy (or create) non-residential, “intermittent” or transient occupancy type operations where occupancy is 30 days or less.

The Bottom Line

If you are not sure how VA loan occupancy rules affect your mortgage, have a frank conversation with your lender about what you would like to do and whether it is permitted under VA mortgage loan rules. VA loans allow you to buy and refinance a home; they also allow you to rent out the home freely if you refinance with a VA Interest Rate Reduction Refinance Loan. Some borrowers consider applying for a VA Cash-Out Refinance instead–thinking the same rules might apply.

However, VA Cash-Out Refinancing requires the borrower to again certify occupancy in writing and use the home as the primary residence. If you choose not to refinance your VA mortgage with another VA loan, know that the occupancy rules you agreed to under the original VA loan are no longer applicable and any new requirements for occupancy that may apply (FHA and USDA mortgages especially) will apply instead.

Make sure you fully understand any new occupancy requirements for a different, non-VA mortgage loan before you commit.

 

>> Interested in a no PMI, zero down payment possible home loan?  For a no-obligation, free consultation regarding your VA Loan eligibility, please go here.

 

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