VA Loan Multi-Family

8 Crucial Steps to Secure a VA Loan for a Multifamily Property

Military service members possess a significant advantage in the realm of multifamily home ownership: they can acquire a home loan for a multifamily property without the need for a down payment, thanks to the support of the U.S. Department of Veterans Affairs (VA). However, before stepping into the roles of both homeowner and landlord, it’s imperative to grasp the essential requirements for obtaining a VA loan for a multifamily home.

Understanding Multifamily Homes and Their Appeal

VA Loan Multi-Family

In essence, a multifamily home is typically a single building comprising two, three, or four separate dwelling units designed for distinct families. Commonly referred to as a duplex, triplex, or fourplex, a property with two to four units offers an excellent opportunity for veterans to engage in “house hacking.” This entails living in one unit while renting out the others, allowing for the accumulation of home equity and the initiation of real estate investments. The additional rental income can potentially cover a substantial portion, if not all, of the monthly mortgage payments, providing surplus funds for other housing-related expenses.

Three Compelling Reasons to Opt for a VA Loan for Multifamily Homes

  1. Zero Down Payment Requirement Multifamily homes can be acquired without a down payment, provided there is sufficient VA entitlement. This stands in stark contrast to Federal Housing Administration (FHA) loans, which necessitate a minimum 3.5% down payment, and conventional loans requiring up to a 25% down payment for multifamily home purchases.
  2. Exemption from Mortgage Insurance Unlike FHA or conventional mortgages, VA loans do not mandate mortgage insurance. This alleviates the burden on borrowers and lenders in the event of a default.
  3. Joint Purchase of Up to Seven Units The VA offers a unique “joint loan” option, enabling two or more eligible veterans to collectively purchase a multifamily property with up to seven units. Other loan programs typically cap the number of units at four.

Qualifying for a VA Loan on a Multifamily Home

To secure a VA loan for a multifamily home, you must meet the following criteria:

  • Basic Military Service Requirements: Confirm your eligibility by obtaining a Certificate of Eligibility, applicable to veterans, active-duty service members, and members of the Reserves or National Guard.
  • Credit Scores, Income, and Debts: Qualify based on credit scores, income, and total debts. Ensure you have sufficient cash to cover six months of mortgage payments on the purchased property.
  • Intent to Reside: Plan to move into one of the properties within 60 days of closing and commit to residing there for a minimum of 12 months.

Eight Essential Steps in Acquiring a VA Loan for a Multifamily Property

VA Loan Multi-Family

  1. Meeting Minimum Service Requirements Veterans, active-duty service members, and Reserves or National Guard members must provide proof of eligibility for a VA-guaranteed home loan.
  2. Checking Multifamily Loan Limits Verify multifamily loan limits in your area, as set by local conforming loan limits. These limits vary based on the number of units, with different thresholds for two, three, and four-unit properties.
  3. Understanding VA’s Minimum Mortgage Requirements Familiarize yourself with VA loan prerequisites, including entitlement-based down payment exemptions, preferred credit scores, debt-to-income ratios, employment history, cash reserves, funding fees, and rental management experience.
  4. Reviewing the VA Home Appraisal Lenders must obtain a VA appraisal for financed multifamily homes, ensuring compliance with property requirements and structural integrity. Recognize that multifamily appraisals incur higher costs than single-family home appraisals.
  5. Shopping Around with VA-Approved Lenders Obtain loan estimates from multiple VA-approved lenders, considering projected rental income for qualifying purposes. Note that origination fees are capped at 1% of the loan amount.
  6. Engaging a Real Estate Agent Collaborate with a seasoned real estate agent familiar with VA loans to negotiate closing costs. Leverage their expertise to navigate potential issues arising from disparities between offered and appraised home values.
  7. Closing on the Loan Scrutinize VA closing costs on the final disclosure, ensuring the removal of funding fees if exempt due to a service-related disability. Verify the absence of non-allowable fees.
  8. Securing Tenants and Management Plans Partner with a real estate agent to screen tenants and draft rental agreements. Alternatively, consult a real estate attorney or hire a property management company to handle landlord responsibilities.

Evaluating the Pros and Cons of VA Loans for Multifamily Homes

VA Loan Multi-Family

Pros:

  • No down payment required
  • Exemption from mortgage insurance
  • Purchase of up to seven units
  • Qualification based on rental income

Cons:

  • Landlord experience required for rental income qualification
  • Need for additional cash reserves
  • Mandatory primary residence occupancy
  • Stringent VA appraisal standards for the property

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