Are you considering purchasing property this year? If so, you’re in good company.
Research shows that in the latter half of 2022, the United States’ homeownership rate increased from 65.8% to 66% in one quarter. Today in mid-2024, the homeownership rate in the U.S. has seen some fluctuations but remains relatively stable compared to recent years. According to the U.S. Census Bureau’s latest data, the homeownership rate was approximately 65.5% in the second quarter of 2024. This represents a slight decrease from the 66% rate recorded in late 2022.
What You Can Use a VA Loan to Purchase
For U.S. service members, the VA home loan may be one of the easiest ways to secure your dream home. This is because it doesn’t require a down payment and also offers better interest rates and terms than traditional loans from banks and mortgage companies. However, to leverage it, you will need to understand the specific VA home loan requirements, including what it can and can’t be used to purchase.
In particular, these limitations are important to understand if you are looking to a VA loan for investment purposes or to get started in real estate in a creative way. Let’s explore this in more detail below.
1. Single-Family Home
If you’re thinking about purchasing a single-family house, you are allowed to finance your purchase with a VA loan.
Single-family homes are houses intended for single families to reside in. Your target home may be semi-detached or detached. Either way, it has to have a wall separating the home from adjacent homes.
These types of homes are also built on their own plots of land. In addition, they have their own entrances, bathrooms, kitchens, and utilities.
2. Duplex, Triplex, or Quadplex
You can also use a VA home loan to purchase a duplex, triplex, or quadplex.
However, you have to live in one of the units. You can rent out the other units. If you choose to do this, you may want to run a tenant credit check to make sure you get reliable tenants.
In addition, a single veteran seeking a VA loan cannot buy a building with five or more separate units. However, if multiple veterans are buying a building, the building can have five or more units.
For instance, a veteran can purchase four units, two veterans can purchase six of them, and three veterans can purchase seven of them.
If you are depending on the property’s rental income to qualify for a VA loan, you must demonstrate that you have the qualifications and background needed to succeed as a landlord.
You must also have enough cash saved up to make mortgage payments for six months or more without aid from your rental income.
3. Manufactured/Mobile Home
You may use a VA loan to buy a manufactured or mobile home as well. The home has to be affixed to land, though.
Still, most lenders won’t lend on modular or mobile homes. That’s because these kinds of homes carry greater risk, as they are more likely to depreciate long-term compared with other house types.
4. Tiny Home
Are you thinking about buying a tiny house using a VA home loan? You can as long as the home meets certain VA requirements.
First, the house has to pass an appraisal. The appraisal will help confirm the house’s value. It will also help the VA evaluate the tiny home’s condition.
Appraising a tiny home can be more challenging than appraising a traditional home. That’s because finding comparable sales for a traditional home is relatively straightforward.
Extra effort and time are needed to find comparable sales for tiny homes and determine appropriate values for them.
In addition, tiny houses must be on permanent foundations to qualify for VA loans. Also, only 400-square-foot homes or bigger homes are eligible for these loans. That’s because the VA requires each home to have enough space for sanitary facilities, cooking/dining, sleeping, and living.
You also can’t get a VA loan for a tiny house on land you’re renting. You must own the lot the tiny house is sitting on.
5. Land Where You’re Building a House
You may also get a VA loan for a house you are building on a plot of land.
To do this, your building site, building plan, and builder must be approved by the VA. In addition, your home must pass three inspections. Your builder must also provide a warranty on your home for one year or more.
If you can’t find a lender who wants to give you a VA loan to build a house, you may want to seek a conventional construction loan instead. Then, once your home is complete, you can refinance the house with a loan from the VA.
Alternatively, you may hire a contractor to construct a home according to VA standards. Then, when the house is finished, you can purchase the house with a VA loan.
What You Cannot Use a VA Loan to Buy
Of course, there’s also several things that you can’t use a VA home loan to buy. Simply put, these asset types are excluded from the program.
1. Second/Vacation Home
You may not use a VA loan to purchase a second home or vacation home. These are homes you don’t plan to live in for six months or more each year.
The VA doesn’t lend for vacation homes because their loans are aimed at helping people buy or refinance primary residences.
2. An RV
You also cannot purchase an RV using a VA home loan. That’s because boats and RVs are not deemed real property. They don’t have permanent foundations.
3. A House Boat
Unfortunately, this also means that you’ll be excluded from buying a house boat with a VA loan. This seems like it should qualify because you could live in it, but unfortunately, the VA loan program is clear that it does not.
4. Raw Land With No Home On It
Vacant land isn’t eligible for financing through the VA.
This means you cannot use a loan to buy vacant land even if you’re planning to add a house to it down the road. VA loans will only help those who plan to buy land and build houses on the land immediately.
5. Investment Properties
Furthermore, you cannot use a VA home loan to finance an investment property. However, you can use a VA home loan to buy a primary residence, then convert the residence to a rental home later when you decide to move.
In this situation, you might want to speak with your lender to make sure they are okay with this.
6. Commercial Properties
Finally, VA loans can’t be used to purchase a office space, retail space, industrial space, or any other non-residential property.
Simply put, you have to be able to make the asset you’re acquiring your place of residence or it will be excluded from coverage under the VA Loan Program.
The Particulars of VA Home Loan Requirements
According to VA home loan requirements, you can use a VA loan to purchase a single-family home or a duplex, triplex, or quadplex. You can also use this type of loan to finance a manufactured/mobile home, tiny house, and land where you are building a house.
VA loans cannot be used to buy second/vacation homes, RVs, land without houses, or investment properties. Consider these loan requirements as you seek to purchase your dream home with a VA loan this year.