Can You Buy a Multifamily Home With a VA Loan?

Eligible veterans, service members, and select surviving spouses can purchase a multifamily home using a VA loan. This specialized mortgage program, guaranteed by the U.S. Department of Veterans Affairs (VA), aims to help those who have served their country achieve homeownership. While commonly associated with single-family residences, the VA loan also extends to properties with multiple dwelling units, offering a unique opportunity for qualified individuals.

VA Loan Eligibility for Borrowers

Borrowers must first meet specific service requirements. This typically includes veterans who meet minimum active-duty service periods, current active-duty service members, members of the National Guard and Reserves, and certain surviving spouses who have not remarried.

VA loan eligibility includes “entitlement,” which represents the amount the VA will guarantee on a loan. This entitlement can be used multiple times throughout a borrower’s lifetime, and it can even be restored after a previous VA loan has been paid off and the property sold, or if another eligible veteran assumes the loan. Understanding one’s available entitlement is a crucial first step, as it directly influences the loan amount a borrower can secure.

The primary occupancy requirement applies to multifamily VA loans. The borrower must intend to occupy one of the units in the multifamily property as their primary residence. Typically, the borrower is expected to move into the property within 60 days of closing.

Beyond service and occupancy requirements, lenders will also evaluate the borrower’s financial capacity. While the VA itself does not set a minimum credit score, private lenders offering VA loans will have their own credit score requirements, often seeking a FICO score of 620 or higher. Lenders also review income stability and debt-to-income (DTI) ratios to ensure the borrower has the financial means to repay the loan, though VA loans often have more flexible DTI guidelines compared to conventional loans.

Property Requirements for Multifamily VA Loans

Multifamily properties eligible for VA financing are specifically limited to those containing up to four dwelling units. This means a VA loan can be used for a duplex (two units), a triplex (three units), or a fourplex (four units), but not for properties with five or more units, which are generally classified as commercial real estate.

The owner-occupancy requirement extends to the property itself, reinforcing that the borrower must reside in one of the units. While the borrower occupies one unit, the remaining units can be rented out, providing a potential source of rental income.

All units within the multifamily property must meet the VA’s Minimum Property Requirements (MPRs). MPRs cover essential aspects like functional plumbing, heating, electrical systems, adequate roofing, and safe access, applying to every unit in the dwelling, not just the one the borrower intends to occupy.

Furthermore, the property must be primarily residential and not predominantly commercial. If a property has mixed-use zoning, the commercial space typically cannot exceed 25% of the total square footage to qualify for a VA loan. The VA also requires that the property has a remaining economic life of at least 30 years, ensuring its long-term viability as a residential dwelling.

Financial Aspects and Loan Limits

One of the significant advantages of a VA loan for a multifamily property is the potential for no down payment, provided the borrower has full entitlement. The absence of private mortgage insurance (PMI), which is typically required for conventional loans with less than 20% down, also results in lower monthly payments.

Lenders may consider potential rental income from the non-owner-occupied units when evaluating a borrower’s ability to qualify for a larger loan amount. This can be a substantial benefit, as the income generated from the rented units can help offset the mortgage payment, improving the borrower’s debt-to-income ratio. Lenders typically factor in a percentage of the projected rental income, often around 75%, to account for potential vacancies and maintenance costs.

VA loan limits, while technically eliminated for borrowers with full entitlement, still apply in practice for many situations and vary by county and the number of units. These limits are generally higher for multifamily properties than for single-family homes, reflecting the increased value of properties with multiple units. For instance, the limit for a fourplex will be higher than for a duplex in the same area. Borrowers should confirm the specific loan limits for their property’s location to understand the maximum amount they can finance.

A VA funding fee is typically applied to the loan amount, which helps offset the cost of the program to taxpayers. This fee can range from 0.5% to over 3.6% of the loan amount, depending on factors such as service type, loan purpose (purchase or refinance), and whether a down payment is made. Certain borrowers, such as veterans receiving VA disability compensation, may be exempt from paying this fee.

The Application Process

Initiating the VA loan application process for a multifamily home begins with finding a VA-approved lender. It is beneficial to work with lenders experienced in VA loans, especially those familiar with multifamily properties, as they can navigate the specific requirements and nuances of these transactions. Not all lenders participate in the VA home loan program, so verifying their experience is important.

A critical document for the application is the Certificate of Eligibility (COE), which confirms the borrower’s eligibility for VA loan benefits and their available entitlement. Borrowers can often obtain their COE online through the VA’s eBenefits portal or through their chosen lender.

Once a lender is selected and eligibility confirmed, obtaining pre-approval is a vital step. Pre-approval for a multifamily VA loan provides a clear understanding of the maximum loan amount for which the borrower qualifies, strengthening their position when making offers on properties. This process involves a review of the borrower’s income, assets, and credit.

The next stage involves searching for an eligible multifamily property that meets the VA’s unit and occupancy requirements. After a suitable property is identified, the borrower makes an offer, which, once accepted, moves the process to the appraisal stage. A VA appraisal is mandatory for all VA loans. The VA appraiser will assess the property’s value and ensure it meets all Minimum Property Requirements (MPRs) across all units.

The final stages include underwriting and closing. During underwriting, the lender thoroughly reviews all financial documentation, property appraisal, and borrower eligibility to ensure compliance with VA guidelines and their internal policies. Upon successful underwriting, the loan is approved, and the closing process commences. At closing, all necessary documents are signed, funds are disbursed, and the borrower officially takes ownership of the multifamily property.