Over the past decade, the popularity of the VA loan program has grown exponentially. In 2004, VA backed mortgages only accounted for two percent of all mortgages, ten years later that number has increased to eight percent. Military members only make up ten percent of the entire population, making the number of houses purchased with VA loans all the more impressive. To understand why so many veterans and active duty personnel are using the loan, look no further than the benefits provided by the loan program. Advantages of VA loans include no-money-down, low-interest rates and easier qualifying standards.
Important for applicants to be aware of is who is eligible to use a VA loan, and what specific properties usage is allowable for. Not being aware of these limitations can function as a huge time waste and unsatisfying process for the borrower, and real estate agent associated with the transaction.
The VA loan is restricted (in most cases) to active duty service members, veterans, national guardsmen and the surviving spouses of military personnel. An honorable discharge, as well as a service time of 90 continual wartime days or 181 days during peacetime, is required to take out a loan.
In terms of what properties are acceptable for purchase with a VA loan, the Department of Veterans Affairs has specific guidelines. The most important rule for VA-backed financing is that the property must be the primary residence of the borrower or borrower’s immediate family (spouse or children).
- A single-family home is one of the most common uses for a VA home loan. Additionally, a townhouse or condominium can be approved, but it must be located in a community or development that has been determined acceptable by the VA. The VA provides a list of approved property developments, however if a condo isn’t already on this list; VA Home Loan Centers can submit it for approval.
- A VA loan can be used to purchase a manufactured home, as long as it will be sold with land and is on a permanent foundation. It’s important for borrowers to remember that lenders aren’t always enthusiastic about financing this particular type of property. Additionally, many lenders do not permit the purchase of modular homes in certain states, so borrowers should verify they live in a state in which this type of purchase is permitted.
- A service member or vet can use a VA loan to purchase a home located on farm property, but not simply on land that would be used for farming. A home must be included in the purchase. Meaning, the loan is not for the farm land, but for the habitable, primary residence located on the land.
- A multi-family unit can be purchased with a VA-backed home loan, but at least one of the units has to be used as the borrower’s primary residence. The units musty be in a VA approved development or must receive approval from the VA. Additionally, they have to be in a VA approved community. Lenders set forth requirements that dictate which multi-family developments are eligible. A few examples of ineligible communities include those that don’t have Homeowner’s Associations, and those that used Chinese drywall in their construction.
- While a VA home loan can be used to build a new construction home, it may be very difficult to receive approval for this particular type of property. Unless the buyer is purchasing a home from a builder. Furthermore, the home must meet certain inspection requirements as it is being built.
- VA Energy Efficient Mortgages are available, these are not used to purchase a home, but to make a home more energy efficient, however it is required that these are used in combination with a VA purchase or refinance loan. Click here for more information about EERF.
What’s Not Acceptable
- A veteran or active-duty service member cannot use a VA loan to purchase a home that is an investment. The borrower cannot purchase a home using a VA loan with the primary intention of renting the property out. However, under certain circumstances, a home financed with a VA Loan can be rented out.
- VA loans cannot be used as a business loan or to purchase storefronts or office spaces. VA loans are only designated for the use of residential properties.
- A VA loan cannot be used to buy unimproved, bare or farm land that does not contain an owner occupied primary residence for the borrower.
- VA loans cannot be used to purchase homes that are not located within the U.S and U.S. territories. Click here for a list of locations where use of the VA benefit is allowed.
Beyond the aforementioned guidelines, the VA has in place specific occupancy requirements that must be maintained by the borrower. Veterans and active-duty military members are required to prove that they will occupy the home purchased and that it will be a primary residence. A service member or veteran has 60 days after closing to move into a home, however in certain circumstances the VA may allow for an extension of this time.
In the event that the borrower is active-duty, deployed, or works in another area (such as a contractor) the spouse can typically fulfill the occupancy requirements.
The occupancy requirements mean a borrower cannot use a VA loan to purchase a vacation home or second home, although a second VA loan can be used if the borrower is experiencing a drastic change in circumstances, such as a PCS or divorce.
If you’re unsure of whether or not the property meets the criteria for a VA loan, contact a VA Home Loan Centers representative for immediate assistance. VA Home Loan Centers can guide you through the process and help you determine which properties are eligible for purchase, helping you save time by expediting the process.
To reach a representative, call 888-573-4496
To apply for a VA loan, click here