Veterans and service members who want to purchase multiunit, also known as multifamily, properties often see it as an investment opportunity. For many people, the idea of having tenants help pay some or even all of the mortgage is very appealing.
Veterans have a unique opportunity to invest in real estate without a down payment through the VA home loan program. Specifically, VA loans allow eligible borrowers to purchase duplexes, triplexes, fourplexes and certain other multifamily homes.
This guide will explain everything you need to know about using a VA mortgage to buy a multifamily property
What is a Multifamily Home?
A multifamily home is a single residential property that contains two to four separate units for multiple families or households. Each unit has its own kitchen, bedrooms bathrooms and living space.
The most common types of multifamily properties are:
- Duplex – Two units
- Triplex – Three units
- Fourplex – Four units
In some cases, veterans purchasing jointly can use their VA benefits to buy a property with up to six units.
Benefits of Buying a Multifamily Home with a VA Loan
There are several advantages to purchasing a multifamily dwelling with VA financing compared to other mortgage options:
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No down payment required – The VA does not require any down payment if you have full entitlement. With an FHA loan, you’d need at least 3.5% down and 5% down is typically required for a conventional mortgage.
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No mortgage insurance – The VA does not charge monthly mortgage insurance premiums like FHA and conventional loans. This saves you significant money each month.
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More units allowed – Two eligible veterans can purchase a home with up to six units using a joint VA loan. Other programs limit you to four units maximum.
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Rental income can offset costs – The rent you collect from extra units can reduce or eliminate your housing expenses each month.
VA Loan Requirements for Multifamily Properties
While the VA allows loans for multifamily homes, you must meet certain eligibility criteria:
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Occupancy – You must occupy one of the units as your primary residence.
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Property type – The home must be residential in nature. Commercial properties do not qualify.
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Location – The property cannot be in a designated flood hazard zone or coastal barrier resource zone.
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Appraisal – A VA appraiser must verify the property is structurally sound and meets minimum property requirements.
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Cash reserves – You’ll need extra cash to cover 6+ months of PITI payments on any rented units.
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Rental management experience – The VA requires proof you have experience managing rental properties.
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Credit and income – You must meet general VA credit score and debt-to-income requirements. Rental income can help you qualify in some cases.
As long as you meet these parameters, you can use your VA entitlement to purchase a duplex, triplex, fourplex or other conforming multifamily property.
Steps to Buy a Multifamily Home with a VA Loan
Follow these key steps to purchase a multifamily dwelling using your VA benefits:
1. Get prequalified – Work with a VA-approved lender to get prequalified and understand your budget and loan amount.
2. Find a real estate agent – Locate an agent experienced with the VA loan process and multifamily homes in your area.
3. Make an offer – Make an offer on a VA-approved multifamily property you intend to occupy.
4. Order an appraisal – The lender will order a VA appraisal to ensure the home meets program requirements.
5. Complete loan process – Finish the loan application, document income/assets, get home inspection, etc.
6. Close on property – Finalize purchase, move into your new multifamily investment property.
7. Find tenants – Fill vacant units by listing rentals and vetting tenant applications.
The VA mortgage process is very similar to purchasing a single-family home. The main difference is providing documentation of rental property management experience and projected rental income.
Tips for Buying a Duplex or Triplex with a VA Loan
Here are some top tips when purchasing a duplex or triplex specifically using your VA benefits:
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Research rent prices – Make sure you can rent the other unit(s) at favorable rates. Look at comparable rentals in the neighborhood.
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Inspect thoroughly – Carefully examine both units for any repairs or issues that may impact costs or rental ability.
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Consider a joint loan – Applying with another veteran allows you to buy a larger multifamily home.
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Hire a property manager – Consider hiring a property management company to handle landlord duties like finding/screening tenants and collecting rent.
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Understand expenses – Account for higher insurance, utilities, maintenance and other ownership costs for a multifamily vs single family home.
Using Rental Income to Qualify for a VA Multifamily Loan
The VA allows borrowers to use projected rental income from the units you plan to rent out to help qualify in some cases. However, lenders have strict requirements:
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Rental management experience – You must document at least 1 year of experience managing rental properties.
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Lease agreements – Provide copies of current signed leases from existing tenants if applicable.
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Appraisal – The VA appraiser must verify fair market rent for vacant units based on location, condition, amenities, etc.
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Reserves – Have 6+ months PITI reserves for each unit you plan to rent.
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Income calculation – Lenders will use a conservative percentage of projected rents, often 75% or less.
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Occupancy – You must plan to occupy 1 unit as your primary home.
Meeting these requirements allows rental income to potentially offset your mortgage payment or supplement your qualifying income.
alternatives of buying a multi family home with va loans
While VA loans provide a great financing option for veterans to purchase a multifamily property, there are some alternatives to consider as well:
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Conventional loan – You can buy a duplex or triplex with 5-20% down using a conventional mortgage in some cases.
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FHA loan – An FHA loan requires just 3.5% down for a multifamily home, but also charges mortgage insurance.
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USDA loan – In designated rural areas, USDA loans offer 0% down mortgages for dual-unit properties.
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Portfolio loan – Local banks may offer portfolio mortgages for multifamily homes with flexible requirements.
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Investor financing – Hard money loans or private financing could provide funds for a 20-30% down payment if you lack VA entitlement.
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All cash purchase – Those with sufficient cash reserves could buy a multifamily home outright without needing a mortgage.
Key Takeaways – VA Loans for Multifamily Homes
The major things to remember about using a VA loan to purchase a duplex, triplex, fourplex or other multifamily property include:
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You can buy a 2-4 unit home with 0% down through the VA.
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Occupy 1 unit as your primary residence within 60 days of closing.
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Rent from the other unit(s) can offset your housing costs.
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Must meet VA appraisal, credit, income and reserve requirements.
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Multifamily homes don’t have VA condo approval requirements.
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Consider rent prices and expenses before investing in a multifamily property.
While not right for everyone, a VA multifamily loan provides eligible veterans a unique way to enter the real estate investment market without needing a down payment or mortgage insurance.
Frequency of entities:
va home loan: 9
multifamily: 17
duplex: 7
triplex: 5
fourplex: 3
va loan: 19
multifamily home: 8
rental income: 7
primary residence: 5
Mixed-Use Property and VA Loans
A mixed-use property is a building that is zoned for both residential and commercial use. These types of properties can pose a unique advantage to Veterans. However, it’s important to note the commercial space cannot exceed 25 percent of the total square footage. Limitations on the size of the commercial space ultimately come down to the VA’s Minimum Property Requirements.
As with other multiunit properties, the mixed-use space cannot have more than four units. The VA will also want the space to have a remaining economic life of at least 30 years, meaning the property must remain residential for the life of the loan.
The second big issue is the rental income. Generally, the thought is something like this: You’re going to buy a duplex, either inherit tenants or quickly land some and then have them pay most or all of your mortgage every month.
And that’s a nice thought because if you can get a lender to count this future rental income, it is easier to qualify for the loan.
For example, if you’re looking at a multifamily property that carries a $2,000-a-month mortgage payment, being able to count $1,000 a month in rental income means you only have to qualify for a $1,000-a-month payment.
The problem is you might not be able to factor that projected rental income into the equation when it comes to qualifying for the loan. Policies and guidelines on this can vary by lender, so make sure to talk to your lender beforehand.
Here at Veterans United, we wouldn’t consider future rental income as an effective income toward a mortgage unless you have a track record as a landlord. Typically, we would need to see documents showing a recent two-year history as a landlord or property manager.
In addition to the two-year history, you’ll also need renters locked into a lease.
In terms of calculating the projected rental income, Veterans United currently uses the lesser of 75 percent of verified prior rent collected on the units or the appraiser’s opinion of the property’s fair market rent. VA buyers purchasing properties without existing tenants would need to have leases in place at closing.
Borrowers who qualify and want to count future rental income will also need six months’ worth of cash reserves in the bank. That’s six months’ full mortgage payments, including taxes, insurance, and any homeowner association dues.
Generally, you won’t need cash reserves for a multiunit property unless you want to count that rental income.
Every homebuyer’s situation is different, especially when it comes to purchasing multiunit properties.
Talk with a Veterans United VA Loan Expert at 855-259-6455 for a closer look at your specific scenario.
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About Our Editorial Process
Veterans United is recognized as the leading VA lender in the nation, unmatched in our specialization and expertise in VA loans. Our strict adherence to accuracy and the highest editorial standards guarantees our information is based on thoroughly vetted, unbiased research. Committed to excellence, we offer guidance to our nations Veterans, ensuring their homebuying experience is informed, seamless and secured with integrity.
Can a VA loan be used for commercial property?
No, the occupancy guidelines are part of why you cant use a VA loan to purchase commercial properties. This loan program focuses on helping Veterans purchase homes they live in full-time.
You cant use your home loan benefit as whats essentially a commercial loan. So buying properties whose use is non-residential isnt going to work. Again, it is possible to purchase a residential property with your VA loan benefit, reside in one of the units, and rent out the others.
VA Loans: How to Guide For Buying a Mult-Family Home Using Your VA Loan in 2023
FAQ
Does VA loan cover multifamily?
Can you use a VA loan on a 4 Plex?
Can I buy a 2 million dollar home with VA loan?
Can I use my VA home loan for a rental property?
Can I buy a multifamily home using a VA loan?
You can buy a multifamily home using a VA loan if you meet the minimum service requirements. If you’re a veteran, an active-duty service member, or a member of the Reserves or the National Guard, you’ll need to provide proof that you qualify for a VA-guaranteed home loan.
Can a VA home loan be used for a multiunit property?
Using a VA home loan for a multi-unit property is an attractive option for many buyers. Veterans: Check your $0 down eligibility today! However, there are a few key considerations to understand at the outset when it comes to multi-unit properties.
How many units can be bought with a VA loan?
According to the VA, multifamily homes purchased with a VA loan can have one to four units. You may be able to buy a home with more units if you’re applying for a joint VA loan with other applicants.
Are VA Home Loans a good option for veterans?
VA home loans are a popular loan option for qualifying active-duty service members and veterans, along with eligible surviving spouses. These loans are backed by the U.S. Department of Veterans Affairs (VA) and typically require no down payment. They also offer competitive interest rates and other special benefits.