If you’re a veteran looking for flexible financing options to start a real estate journey, my experience has shown that the answer to your property dreams may lie with a VA loan for a mixed-use property.
This powerful home loan option, backed by the VA, can open doors for housing and commercial prospects under one roof. It unveils opportunities you might not have considered before.
A realm where your entrepreneurial spirit can flourish and rental income can significantly offset your loan payments is awaiting your exploration. The question is, are you ready to venture in?
What is a VA Loan?
The VA is well known for supporting veterans and active service members. One of their major backing options is the VA loan program.
There are various types of VA loans, including VA-backed purchases and cash-out refinance. They are designed to help you purchase a home without the pressure of a hefty down payment or private loan insurance.
However, before qualifying for this loan, you need to meet the VA loan minimum property requirements to enjoy numerous benefits offered, including:
- No required down payment
- The ability to negotiate interest rates
- No private mortgage insurance is necessary
- VA assistance if trouble paying the loan arises
Additional requirements exist to finance a multi-family property with a VA loan. Initially, the commercial area of the property should not surpass 25% of the overall square footage. Also, VA will also want to ensure that the property must not exceed four units, with at least 30 years remaining of its economic life.
Understanding Mixed-Use Property
This facility is utilized for residential and commercial use. It comprises buildings with commercial spaces on the bottom floor, such as retail shops or restaurants, while the upper floors house residential units. It provides a unique opportunity to combine your home and business in a single location.
These properties are rising in urban areas, providing residents with readily accessible amenities while offering business owners exposure to consistent foot traffic. It’s a modern approach toward efficient land use. Nevertheless, the unique nature of these properties often leads to more stringent requirements than traditional homes when considering financing options.
If a conventional multi-use property isn’t your liking, perhaps more unique property types, such as a barndominium, may pique your interest. A VA loan for a barndominium can be used to upgrade or buy a new structure. However, you must ensure that the property meets the basic occupancy requirements and guidelines.
Eligibility of Using a VA Loan for Mixed-Use Property
Undoubtedly, using a VA loan to finance the purchase of mixed-use properties brings opportunities to take strides in property ownership. Let’s delve into understanding the eligibility specifics of this type of financing.
Requirements
The term “mixed-use” signifies that the property contains residential and commercial units. The secret for a property to qualify for a VA loan is that at least 75% of the property must be designated and zoned for residential use. Any commercial space available must not outsize the residential area.
Fulfilling the Occupancy Obligation
Another fundamental requirement is that the borrower occupies the property as their primary residence. It suggests that a significant portion of the property – nearly 30% needs to be used for dwelling purposes.
The Loan Application Process
As much as it might seem complex, applying for a VA loan for a mixed-use property isn’t so much different from any other VA loan, like a VA loan to buy a duplex. It starts with obtaining a Certificate of Eligibility (CoE) from the VA, which you’ll then present to your desired lenders.
Upon accepting your application, you can search for the perfect property, always keeping the VA’s regulations in mind. The eligibility aspect of using a VA loan for multi-use facilities centers on ensuring the property remains residential.
Why Consider VA Loan for Multi-Use Properties as an Investment Property
Increasing your investment portfolio using a VA loan with multi-unit properties cannot be understated. First, VA allows you to enjoy both a commercial and a residential unit, taking the term ‘work from home’ to the next level.
Also, the rental income from the commercial unit can significantly contribute to your mortgage payments. Such a setup can make homeownership substantially less financially straining.
Comparing VA Home Loan with Other Mortgages
When navigating the world of home buying and mortgages, it’s crucial to understand how different loans stack up against the VA loan. To aid the comparison, the table below presents a clear contrast of the loan with standard home loans like conventional and FHA loans.
| Home Loan Type | Down Payment | Private Mortgage Insurance | Property Restrictions | Interest Rate |
|---|---|---|---|---|
| VA Home Loan | Not required | Not needed | Strict (mainly residential) | Often lower |
| Conventional Loan | Usually required 5% of purchase price | Necessary if down payment is below 20% | Less strict | Variable, usually higher |
| FHA Loan | Required (3.5% or 10%, based on credit score) | Required for the life of the loan | Strict | Competitive, often lower for individuals with lower credit scores |
While VA home loans are typically favorable for eligible individuals thanks to zero down payment requirements and lower interest rates, one must consider the restrictions related to property types.
Effectively Utilizing Property with a VA Loan
Owning a multi-use property with a VA loan demands strategic utilization to maximize possible benefits. One key aspect is ensuring the property remains primarily residential. To effectively achieve this, consider which spaces can be modified or utilized for residential purposes, even if they currently serve commercial properties.
Besides, consider how to promote and use your commercial space effectively. As the saying goes, ‘location is key,’ and leveraging your location can significantly influence profitability. Commercial rents are generally higher and can greatly assist with loan payments.
Strategies of House Hacking Using VA Loan for Rental Income
House hacking is an investment strategy where the investor rents out parts of their primary residence to generate rental income, offsetting mortgage payments. In mixed-use property loans, you can live in one unit and rent out the others, including commercial space, enabling the acquisition of a home and business simultaneously, with lucrative rental income.
To apply this strategy, it’s pivotal to familiarize yourself with local laws regarding rentals, conduct a comprehensive cash-flow analysis, and find reliable tenants. From my interactions with experts in this field, I’ve learned that conducting comprehensive research, consulting with loan advisors and real estate agents, and establishing clear financial goals before purchasing can get you started with owning a mixed-use property with a VA loan.
Frequently Asked Questions About VA Loan for Mixed-Use Property
What are the requirements for VA owner occupancy?
The requirements for VA owner-occupancy stipulate that the borrower must intend to live in the property as their primary residence. This rule exists since a VA loan can only be used for your primary residence, not investment or rental properties. However, there are exceptions, such as in the case of a deployed service member, where a spouse could fulfill the occupancy requirement, or for properties with multiple units where the borrower occupies one of them.
Why does the VA require the nearest living relative?
The VA requires the nearest living relative as one of the potential ways to fulfill the owner-occupancy requirement in exceptional circumstances. For instance, if a service member is deployed overseas and cannot occupy the home, a spouse or adult child can fulfill the owner-occupancy requirement. This helps to ensure the VA loan is used responsibly and complies with the intent of the loan program.
Can you assume a VA loan?
Yes, you can assume a VA loan given the current VA homeowner approves and you meet the lender’s qualifications and VA’s occupancy guidelines. This could free the original borrower from the loan responsibility. The assuming borrower will take over repayment of the remaining mortgage debt under the actual terms. However, it’s crucial to walk through this process with a knowledgeable lender to ensure all regulations are strictly followed.
