Using VA Loans For Rental Properties, Condos, And More

Dan Green
The Mortgage Reports contributor

VA Loans For Condos And Other Home Types

In today’s housing market, there are tens of “home types” from which a buyer can choose.

Among the most common home types are condos, single-family homes, town homes, and multi-unit properties. More obscure home types include geodomes, log cabins, and homes carved into a mountain.

For military borrowers, it’s important to know which homes are lendable via the VA loan program and which are not. Not all property types will secure a bank’s final VA home loan approval.

The Department of Veterans Affairs is explicit regarding allowable property types. Here’s what you need to know.

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Most Home Types Eligible For VA Loan Guaranty

VA loans are special, government-backed mortgages, first available via the G.I. Bill in 1944. VA loans were created to help military veterans transition from war and into homeownership.

More than 80 years later, the program still offers subsidized mortgage rates and reduced underwriting standards, which has resulted in more than 20 million total VA loan closings since inception.

VA loans can be applied to many specific home types. For example, VA loans can be used to:

  • Buy or refinance an existing home or condo
  • Buy a home or condo that’s under construction
  • Buy or refinance a duplex, triplex or four-unit property

VA loans can also be used to buy a manufactured home, or to buy a lot for a manufactured home.

However, in order to be VA-eligible, a manufactured home, whether existing or new, must be classified and taxed as real estate, specifically. It also must be affixed to a permanent foundation and comply with your local building codes and zoning laws.

A manufactured home can be VA-eligible even if the home or foundation isn’t ready yet.

VA loans can also be used to make home repairs or improvements, and to make energy-efficiency improvements to a home.

To be VA-eligible, homes for purchase or refinance must be located in the United States or a U.S. territory or possession, such as Puerto Rico, Guam or the U.S. Virgin Islands.

Properties in foreign countries are not eligible for VA loan approval.

Verify your new rate (Jun 14th, 2021)

VA Loan Appraisals And Inspections

Like all mortgages, VA loan approval require a satisfactory home appraisal.

As part of the VA approval process, a property appraiser will tour the subject home’s interior and exterior, then compile a valuation report.

This report called an “appraisal”. It’s submitted directly to your lender and is important because the property’s valuation is what’s used to determine your loan-to-value (LTV).

VA loans allow for 100% LTV and have a built-in appraisal appeal process, but that doesn’t diminish the importance of the appraisal. This is because the appraisal process should identify major faults within the home and recommend repairs to be made.

A “major fault” includes a broken roof, faulty electric wiring, or any other defect which may adversely affect the value of the home.

Minor repairs such as “a missing screen window” are not part of the appraisal process and, because your home appraisal is not a substitute for a home inspection, it’s recommended that you also commission a home inspection from a reliable home inspector.

Inspections are not required by the VA loan guaranty program. You shouldn’t skip the step, however.

The home inspection will address your home’s major components, such as the plumbing, heating and cooling, and electrical systems and the roof; and may identify areas of your home in need of repair or replacement.

Sellers will often re-negotiate the price of a home based on items discovered during inspection. It pays to have an inspection done right.

Verify your new rate (Jun 14th, 2021)

How To Use VA Loans On Rental Homes

Like all home loans, VA loans are categorized by “occupancy type”. There are VA loans for primary residences, and there are VA loans for vacation home and for rental homes.

In order to purchase a home using the VA loan guaranty, your home must be owner-occupied. At closing, you’ll certify that you — or your spouse — will occupy the home as your primary personal residence and that you intend to live in the home.

For the purchase of a 2-unit, 3-unit or 4-unit property using a VA loan, you must certify that you’ll be living in one of the two, three or four units.

Note that purchasing a home as a primary residence doesn’t mean that you’ll live in the home forever — only that you’ll be living in it at the time of purchase and for some non-descript period of time afterward.

After moving out, should you retain the home as a vacation property or a rental home, you may continue to participate in the VA home loan program. You can even apply to refinance.

Via the VA’s Interest Rate Reduction Refinance Loan (IRRRL), military borrowers can refinance a home with an existing VA loan so long as that home was formerly their primary residence — even if the home is currently for rent, or used for vacations only.

Mortgage rates for IRRRL loans are typically lower than rates for equivalent refinance programs and documentation standards are fewer. There is no appraisal needed with an IRRRL and lenders are not required to verify income, employment, or credit scores.

You can apply for an Interest Rate Reduction Refinance Loan with any mortgage lender nationwide.

Get Today’s VA Mortgage Rates

VA loans offer a lot of benefits as compared to conventional financing and FHA-backed loans. Via the VA, there’s no down payment required, there’s never any mortgage insurance to pay and underwriters allow for flexible qualification standards.

 

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (Jun 14th, 2021)