Military service members have a big advantage when it comes to buying a multifamily home: They don’t need a down payment if they take out a home loan backed by the U.S. Department of Veterans Affairs (VA). However, before you tackle the responsibilities of both homeowner and landlord, there are some important requirements you’ll need to understand to get a VA loan for a multifamily home.
The VA home loan program provides an invaluable opportunity for eligible veterans, active-duty service members, and qualifying surviving spouses to purchase a home with no down payment. One of the most appealing aspects of VA loans is that they come with fewer restrictions compared to conventional mortgages. For instance, VA loans allow borrowers to purchase properties with up to 4 units without any additional requirements. But did you know that in certain cases, it’s possible to get a VA loan for a 7 unit property?
In this comprehensive guide, we’ll explore everything you need to know about getting approved for a 7 unit VA loan. We’ll cover key topics like eligibility requirements, maximum loan amounts, the financing process, and tips for choosing the right 7 unit property as an investment. Whether you’re an aspiring real estate investor or simply want more space to house your large family, understanding how 7 unit VA loans work is the first step on your journey to financing your ideal multifamily home
Overview of 7 Unit VA Loans
The VA home loan program is primarily designed to help eligible borrowers purchase single family residences to live in as their primary residence. However VA loans can also be used to buy 2-4 unit properties, which are considered residential. Once you move beyond 4 units, a property is typically classified as commercial rather than residential.
In certain circumstances, the VA makes exceptions that allow veterans to utilize their VA home loan guarantee entitlement to finance properties with up to 7 units. These loans essentially function as residential VA loans, meaning you can qualify for 100% financing with no down payment if you have full entitlement. The key is finding a lender willing to underwrite and close a VA loan for this number of units.
It’s worth noting that 7 unit properties fall into a gray area between residential and commercial lending guidelines. Some lenders shy away from this middle ground and prefer sticking to more conventional VA loans for 1-4 units. However, other lenders specialize in offering VA financing programs for larger, unconventional multifamily properties. The key is finding the right lender for your specific needs and situation.
VA Loan Eligibility for 7 Units
To qualify for a 7 unit VA loan, you must first meet the program’s standard eligibility criteria:
- Be an active duty service member, veteran, or surviving spouse
- Occupy one of the units as your primary residence for at least one year
- Have a valid Certificate of Eligibility (COE)
- Meet credit, income, and debt requirements determined by the lender
On top of satisfying the VA’s core eligibility standards, your lender will want to see that you have the financial resources and real estate management experience needed to take on the obligations of a larger 7 unit rental property.
Lenders will look closely at factors like your income, assets, credit score, down payment, cash reserves, and overall debt-to-income ratio. Exceptionally strong finances can help compensate for any weaknesses like a lower credit score.
Owning investment real estate before applying for a 7 unit VA loan can also strengthen your case. You’ll want to highlight previous landlord experience on your application, especially if it involves managing a similar size property. Property management skills are crucial for successfully maintaining large multifamily homes.
The Benefits of Using a VA Loan for 7 Units
VA loans offer inherent advantages over conventional loans that make them well-suited for financing larger, unconventional properties like 7 unit buildings. Here are some of the top benefits:
No Down Payment Requirement
Unlike nearly every other loan type, VA loans allow qualified borrowers to buy a home with 100% financing and no down payment. This benefit applies to 7 unit properties for those with full VA entitlement. Eliminating a down payment reduces the upfront cash needed to purchase and helps maximize return on investment.
Access to Low VA Interest Rates
VA mortgage rates are consistently lower than rates for other loan products with similar terms. Lower rates equate to reduced monthly payments and long term interest savings. VA loans don’t charge any lender fees or prepayment penalties either.
More Flexible Credit Guidelines
VA loans are available to borrowers with lower credit scores that might disqualify them from conventional mortgages. There is no set minimum credit score, so lenders review your entire financial profile. Responsible credit management can outweigh credit mishaps.
Built-In Foreclosure Protections
The VA provides foreclosure prevention assistance to help borrowers overcome hardships and retain homeownership. These protections reduce lending risks, which is why the VA doesn’t require private mortgage insurance.
Reduced Closing Costs
Sellers can legally pay for the buyer’s VA funding fee, which lowers closing expenses at the transaction table. VA loans also don’t charge recurring mortgage insurance premiums that add to long term housing costs.
The Financing Process for a 7 Unit VA Loan
Navigating the mortgage process for a 7 unit VA loan involves some extra steps and requirements compared to smaller residential transactions. Here’s an overview of what to expect:
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Get pre-approved – Work with a lender that offers VA loans for multi-unit properties. They will evaluate your finances to issue a pre-approval letter for a competitive offer.
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Make an offer – Make an offer contingent on securing VA loan financing within a reasonable timeframe acceptable to the seller.
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Property appraisal – The lender will order an appraisal to establish fair market value and ensure the property meets VA minimum property requirements.
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Submit loan application – Provide all required documentation to complete the full loan application, including VA Certificate of Eligibility.
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Loan underwriting – The lender will assess loan risk, validate information, and determine final approval.
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Closing disclosure – Three days before closing, you’ll receive final fee and closing cost details.
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Loan closing – After signing closing documents, loan funds disburse to the seller upon transfer of the property deed.
Expect the entire financing process to take around 30-45 days on average. Having an experienced real estate agent to guide you through the buying journey is highly recommended.
Tips for Choosing the Right 7 Unit Property
Not all 7 unit buildings make smart VA loan candidates. As the borrower, it’s important to be prudent when evaluating potential investment opportunities. Keep these tips in mind during your property search:
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Thoroughly examine the property condition and identify any repairs needed to meet VA minimum property requirements. Rehabilitation costs factor into loan approval.
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Make sure zoning allows for multifamily use of the property. Work with your lender to order a zoning verification letter from the local municipality.
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Look for units that can be rented at sufficient prices to generate enough rental income to cover your mortgage payments and other ownership expenses. Rental income typically must total around 75% of total monthly housing costs.
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Avoid overpaying for a property that won’t provide suitable cash flow. Carefully run the numbers with your agent to determine reasonable offer prices.
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Drive through the neighborhood and check out amenities, schools, safety, local housing market, and other aspects that impact desirability as a rental property.
With the right property selection and financing strategy, a 7 unit VA loan can be an optimal vehicle for purchasing a larger investment property or future retirement income stream without requiring you to tie up personal capital. Just be sure to partner with specialized VA lenders, agents, and other professionals to guide you through the process.
Frequently Asked Questions About 7 Unit VA Loans
Can I use a VA loan for a 7 unit apartment building?
Yes, VA loans may be used to purchase apartment buildings or other multifamily properties with up to 7 units, provided you live in one unit as your primary residence and meet lender qualification guidelines.
What is the maximum VA loan amount for 7 units?
For those with full VA entitlement, there are no maximum VA loan limits on 7 unit properties. Loan amounts are contingent on the lender’s underwriting determination based on factors like your income, assets, credit, and the property appraisal.
Do I need a down payment for a VA loan on a 7 unit property?
No, VA loans allow for 100% financing with no down payment or PMI requirements if you have full entitlement. However, lenders may require a down payment based on your finances and perceived loan risk.
Can I use rental income to qualify for a 7 unit VA loan?
Yes, lenders can factor a percentage of projected rental income from units you won’t occupy to help you meet debt-to-income ratio requirements. A lender may order a separate appraisal to project rents.
What VA loan programs can I use to buy a 7 unit property?
The main options are a standard VA Purchase loan or Interest Rate Reduction Refinancing Loan (IRRRL) if you want to refinance an existing VA loan on a 7 unit property. Cash-out refinancing is limited to 4-unit properties.
Can I manage a 7 unit property myself or do I need a property manager?
While you can self-manage, most lenders prefer seeing an experienced property manager already lined up, especially if you have no prior landlord experience. Management fees factor into loan approval.
Unlock Your 7 Unit Property Dreams with a VA Loan
For eligible borrowers interested in expanding their real estate investments, a VA-backed loan can provide a simple
What is a multifamily home and why should I buy one?
In most cases, a multifamily home is a single building that houses two, three or four separate dwelling units for different families. A property with two, three or four units may also be called a duplex, triplex or fourplex.
The VA requires you to live in one of the units while renting out the others for rental income. Also known as “house hacking,” this strategy gives you the opportunity to build home equity and become a real estate investor. The extra income may offset some or even all of your monthly mortgage payments and even allow you to pocket extra cash to cover other housing-related expenses.
3 reasons to buy a multifamily home with a VA loan
There are three major benefits to buying a multifamily home with a VA loan versus other loan programs:
- No down payment is required. Multifamily homes can be purchased without a down payment if you have enough VA entitlement. By comparison, loans backed by the Federal Housing Administration (FHA) require at least a 3.5% down payment while conventional loans backed by Fannie Mae require 5% down for two- to four-unit homes.
- No mortgage insurance is required. VA loans don’t require mortgage insurance, which is required to help lenders recoup money lost if you default on an FHA or conventional mortgage.
- Two eligible veterans can buy up to a six-unit property. The VA has a special “joint loan” option for two or more veterans to purchase a multifamily home with up to six units, plus one business unit. Other loan programs limit you to a four-unit maximum.