VA mortgages are available to eligible veterans, who can use them to finance up to 100% of the purchase price of an eligible property, up to VA approved loan limits.
Eligible veterans can also finance the VA Funding Fee as part of the loan. Because of that arrangement, the veteran is able to purchase a home with no down payment. The zero down payment loan has largely been eliminated since the Financial Meltdown, for all loan types except VA mortgages.
But in order to qualify for that financing, the property that you are purchasing must be deemed eligible according to VA property guidelines. Though there are certain types of properties that the VA considers to be ineligible, the great majority of properties will qualify.
VA Loan Minimum Property Requirements (MPRs)
The VA will require prospective home buyers to obtain an inspection and an appraisal before they will agree to guarantee the home loan. These inspections are required in order to protect all parties, including the buyer, the lender, and the VA.
For the most part, VA Minimum Property Requirements are common sense. But there are some specific requirements that you should be aware of, including:
Non-residential property use. Any property must be primarily residential in nature. The VA specifies that no more than 25% of the home can be used for non-residential purposes, such as space dedicated to a shop. In addition, the commercial use of the property should in no way impair the home’s use as a residence.
Space requirements. The home must have satisfactory space for living, sleeping, cooking and dining, and sanitary facilities. In other words, all of the amenities that the typical buyer would expect in a typical home.
Mechanical systems. These include the furnace, hot water heater, and other mechanical systems typical to residential properties. They must be deemed safe to operate, protected from destructive elements, have adequate capacity and quality, and have reasonable future utility, durability, and economy.
For the most part, if a system, such as the furnace, is malfunctioning or is well beyond its useful life, repair or replacement will be required. Upgrade may also be required in some situations, such as where a home has inadequate electric capacity to support modern systems. This sometimes becomes an issue with very old properties or rural properties.
Basic construction. The property cannot exhibit any kind of structural defects, such as excessive settling, water leakage, defective construction, rot or termite damage. Generally speaking, the roof must be expected to last at least several years after purchase.
Property access. The property must have acceptable pedestrian and vehicle access. For example, there should be direct street access, rather than having to cross over another property in order to get to the subject home. There should also be access to the home without having to pass through another living unit.
These are just the general VA MPRs. Special circumstances will require special consideration. Don’t be too upset if the property is rejected or requires major repairs prior to closing. It’s all being done to protect you as the borrower and owner of the home.
Existing Property Eligibility
VA mortgage financing is available for 1 to 4 family, owner occupied properties. VA Loans are not available for non-owner-occupied properties, such as vacation homes or investment properties. The subject property must be occupied by the veteran and his or her spouse and family.
In order to qualify as an existing property, the home must be fully completed for at least one year prior to occupancy by the veteran. Otherwise the property will have to have been occupied by the previous owner.
And of course, the property must also meet VA Minimum Property Requirements (MPRs), as described above. Part of the reason why qualifying as an existing property can be beneficial is because VA mortgages on new construction are generally more complicated.
New Construction Eligibility
A property is considered to be new if it has been completed less than one year and never occupied.
In order to close on a property that is deemed to be new construction, the home must be 100% complete, or 100% complete through customer preference items, such as appliances, countertops, and flooring.
A newly constructed home is considered eligible if any of the following criteria have been met:
- The home is covered by a one-year VA builder’s warranty, or
- Enrolled in a HUD accepted ten-year insured protection plan, or
- The home was built by the veteran, who acted as the general contractor in the construction, and is using the property for his or her own occupancy.
There are special eligibility rules if the subject property is either proposed or under construction. A property appraisal will be required either before or during construction if the following apply:
- The appraisal will be based on proposed construction exhibits, and
- The builder offers a one-year VA builder’s warranty
If the property is considered to be a manufactured home, it must be attached to a permanent foundation, and it must also be taxed as real estate. A property, typically a mobile home, that is taxed as a motor vehicle or some similar classification, will not be eligible for a VA mortgage.
In any case involving new construction, a certificate of occupancy issued by the local authority may be required.
Additional Types of Property Eligible for VA Loans
The VA does offer loan guarantees on the following types of residential properties. However, not all lenders will offer mortgages for all of these types of properties. So you may find you need to search among different VA Mortgage lenders to find the right match.
Homes in Approved Condominium Complexes
The VA must approve condominium complexes before veterans can use a VA Loan to purchase a home in that complex. This requires the complex to go through a VA approval process, which includes reviewing the complex’s organizational documents and bylaws, homeowner’s association policies, budget and finances, parking availability, and more.
The VA also maintains a list of approved condo complexes. This can come in handy when you are considering buying a condo. You will need to work with a VA Approved Lender if you do not find the condo complex on the VA list.
Mobile Homes / Manufactured Homes
Many people mistakenly believe the VA doesn’t offer a loan guarantee on mobile homes. This is not true. However, the VA does require the home meet certain qualifications before they will guarantee the VA Loan. And of course, you will also need to find a lender that offers mortgages on mobile homes.*
For example, the manufactured home will need to be permanently affixed to the foundation and otherwise meet the VA’s Minimum Property Requirements, as listed above, and must be taxed as real estate, not as a motor vehicle. All mobile homes must also meet minimum square footage requirements and have permanent eating, cooking, sleeping, and sanitary facilities.
*Why is it difficult to find a lender willing to offer a mortgage on a mobile home? Mobile homes don’t tend to appreciate much and tend to have a shorter lifespan compared to modular homes and other traditional home types. The default rate is also higher on manufactured homes compared to other home types. Some VA Home lenders, including Veterans United, do offer loans on mobile homes under certain circumstances.
Modular Homes or Prefabricated Homes
Modular homes are built off site, trucked to the home location, and built on site. This is a more efficient and economical way to build a home. These homes tend to be more sturdy than mobile homes, and often appreciate more over time. These homes are eligible for VA loans, and it is easier to find a lender that will back a home loan on a prefabricated house, as opposed to a mobile home.
Like manufactured homes, the modular homes must have a permanent foundation, and must meet HUD guidelines.
Properties Considered Ineligible for a VA Mortgage
The Veterans Administration lists six types of properties that are determined to be ineligible for financing:
- Does not meet Minimum Property Requirements (and cannot be made to comply) – In most cases, this refers to matters of safety and livability in the property, and not cosmetic issues. There may also be times when the property either has or lacks features that are not consistent with the general market area, such as excessive commercial use.
- Located in Flood Hazard area where flood insurance is not available – Regular homeowner’s insurance policies don’t insure against flooding. The inability to obtain flood insurance could result in the property being destroyed without financial recourse.
- Located in the Coastal Barrier Resource System – Under the Coastal Barrier Resources Act of 1982 these are areas that have been determined to be ecologically sensitive, and ineligible for federal expenditures and financial assistance. Since the VA is a federal agency, it is unable to lend in those areas.
- Proposed or new construction located in Airport Noise Zone 3 (high noise) – Severe noise could impair the marketability of the property, since very few people are willing to purchase such a home.
- Located in unapproved Condominium Developments (Condo) – This is a limitation that applies to virtually all types of mortgages. A condominium project is thoroughly analyzed, and can be disqualified for such issues as too many non-owner occupied units, an insufficient budget, or significant uncompleted common elements, among others.
- Cooperatives – Condominiums and cooperatives are often used interchangeably, but they’re actually very different. With a condominium, you actually own the interior of the unit. With a co-op, you only own a share of the company that owns the entire building. That means that legally you don’t actually own real estate. For that reason, many lenders shy away from cooperatives, including the VA.
Additional Types of Properties Not eligible for VA Loans
The VA does not allow the use of the VA Loan for all types of home or property purchases. Remember, the purpose of the VA loan is for the veteran to be better able to purchase a stable place to live. This is why the VA is only intended for personal use, and must be occupied by the homeowner within a 60 days of closing on the purchase.
The VA does not allow the use of the VA Loan on the following property types:
VA Loans Can Not Be Used for Unimproved Land
The VA does not allow the VA Loan to be used for the purchase of land unless the veteran also plans to immediately build a home on the land. This will also require pre-approval from the VA, and may include additional paperwork, inspections, and other red tape. The most common situation in which a veteran can use the VA loan to buy land is when it is used in conjunction with a new construction VA loan.
VA Loans Can Not be Used for Investment Properties or Vacation Homes
The VA Loan is intended for personal use as a primary residence. It is not intended to be used to fund an investment property purchase. So you can’t use the VA Loan to buy a home to immediately rent out to someone else. And you cannot use it to buy a vacation home, summer home, beach house, lake house, or second home.
You can, however, use your VA Loan eligibility to purchase a multi-family home up to 4 units in size, provided you intend to live in one of the units. So in a way, you can use the VA Loan to fund a multi-family investment property, as long as you also use it as your primary residence for at least one year.
VA Loans Cannot Be Used for Farms (Unless the Veteran Lives There)
Again, this all comes down to intent. Many farmsteads have a home on the land. You can use the VA Loan to buy a working farm – but only if you intend to live there. You cannot use the VA Loan to buy a farm if you only plan to use it for the land value.
Recommended for All Veterans: Get a Home Inspection
Despite VA property requirements, and the fact that the home will be inspected by an appraiser, you should always consider getting a home inspection performed on the property. It can cost anywhere from $200 to $500, but it’s money well spent. After all, after you close on the home and move in, any problems with the property will be your responsibility to repair.
At a minimum, a home inspection represents a second pair of eyes. The appraiser has already inspected the property, and listed anything that may be an obvious problem. But a home inspector goes in and does a much closer inspection. Not only will he identify problems and potential problems, but he will also gauge the necessity of making those repairs, and even the costs.
Home inspections are not usually required, but getting one is a good way to protect yourself, your family, and your investment in the home.