When it comes to buying real estate, multi-family properties can be a solid investment. The rents obtained from the other units can offset the mortgage payment and, in some cases, make the property cash flow positive.
That means you’re bringing in more money from rent than it costs to own the property.
Since one of the biggest benefits of the VA loan is the ability to buy a property with no money down, multi-family properties are a popular choice. But there are several restrictions when it comes to using a VA loan for a multi-family property.
In this article, we will discuss some of the important things you need to know to buy a multi-family property with a VA loan.
Your primary residence
The VA requires that any property financed with a VA home loan be your primary residence. That means, you must live in the home more than 50 percent of the time and must be moved in within 60 days of closing escrow to qualify.
This can be problematic with rental properties when leases are involved. Since you’ll be required to live in one of the units, make sure to check all the leases to ensure you can move in on time.
If all units are rented out to folks with long-term leases and lots of time before the end of the lease, you won’t be able to move in.
Multi-unit or multi-family VA quarks
When it comes to financing a multi-family rental property with a VA loan, there are some quirky rules that must be followed. Besides the above-mentioned rule about occupancy, the VA puts strict rules on rental income for multi-family properties.
If you plan on using the income from the other units to qualify, the VA requires proof that you’re an experienced landlord and wants to see a minimum of six months worth of financial reserve (principal, interest, and insurance) to prove you can pay the mortgage in the event a unit goes unoccupied.
To prove landlord experience, you must have documented proof that you previously:
- Managed multiple units
- Owned multiple units
- Maintained multiple units
- Collected rents on multiple units
Also, you can count up to 75 percent of the verified fair rental value toward you income for qualification purposes.
Buying more than four units
Most government programs limit mortgage to properties with four or fewer units. A property with more than four units is considered commercial real estate. However, the VA allows two veterans to combined their VA home loans and buy a property up to seven units – four rental units, an additional unit for each veteran, and one commercial unit.
Obviously, using a VA home loan to buy a multi-family property is complicated, but it’s far from impossible. Call us today for more information on how you can build your real estate empire with no money down.