How VA loans can be used to finance multifamily homes
Multifamily homes are now-a-days picking up in the market. It gives a huge advantage of a source of income for the individual apart from having a place to stay. Multifamily homes are an apartment kind of structure where on a same piece of land, accommodation is built in such a way that multiple families can stay together. The owner takes one portion and rents out the others.
The biggest advantage this kind of structure allows is that it assists the owner to pay off the loan quickly as he has an alternate source of income as well that can be used towards this.
VA does not allow loans for any other rental property apart from multifamily homes. One thing the borrower has to make sure is that he stays in one of the units of these structures otherwise he is not eligible for loan.
Points to be considered when taking VA loans for multifamily homes:
- The owner has to ensure that he moves into one of the units in not more than 60 days of the purchase.
- Other financial agencies like FHA and USDA allows loan for the maximum number of 4 units. Any number beyond that would make it a commercial property. However in case of VA, one can take for more than 4 along with other people provided they qualify as an eligible person.
- In case of 2 veterans buying the property together using their eligibility, the property can have 4 residential units and 1 business unit. It can also have one more additional unit which would be in joint ownership. This makes total units to be 6.
Consideration of rental income:
VA loans allow the rental incomes from unoccupied units to be considered as eligibility for loan. The borrower however will have to prove below two points:
- The borrower is an experienced landlord
- In case if the units stay unrented, the borrower should have enough cash reserve with him to pay Principal, interest, insurance and taxes for 6 months. This is to ensure that the borrower does not default in case of non-occupancy of rental units.
In case of point 1 to prove experience, the owner has to prove one of below:
- You must have owned a multifamily home in the past.
- If you have prior experience of managing multifamily home in the past.
- If you have prior experience of collecting property rentals.
- If you were employed in the past for any property maintenance role.
In case of already rented out property, 75% of the verified rent amount is considered as rental income. If the loan is applied for a property which is still in the proposal mode and not yet occupied, the appraiser need to send a letter to VA which determines, what is the ‘Fair Rental Value’ of the property. Out of it, we need to deduct the vacancy cost or operating cost which is usually accepted at 25%.
So, we have seen that a multifamily home is a good option for veterans. They provide a good source of income to the veterans and at the same time it’s easier to take loans for such proposals.