Types of Properties You Can and Cannot Buy With a VA Loan

Marcus Marion, CMA™ 3 weeks ago 0 12

The VA loan program offers many benefits to veterans, active-duty service members, and their families. It offers 100% financing for a home purchase, competitive interest rates, and flexible qualification criteria.

While VA loans offer a lot of flexibility, there are some restrictions on the types of properties that are eligible for financing. In this guide, we’ll review the types of properties you can buy with a VA loan, and the ones that are not eligible for financing.

What You Can Buy With a VA Loan

The VA loan program allows you to purchase a wide range of property types but is generally limited to primary residences.

Types of properties you can buy with a VA loan include:

  • Traditional single-family detached homes
  • Condominium units, as long as they’re VA-approved
  • Manufactured homes that meet specific guidelines
  • New construction homes
  • Multi-unit properties like duplexes and triplexes, if the borrower resides in one of the units

As you can see, VA loans offer plenty of flexibility when it comes to property choices. This program allows veterans and service members to purchase a type of home that meets their needs, preferences and long-term financial goals.

Types of Properties Not Eligible for Financing

Despite the program’s flexibility and forgiving qualification criteria, there are certain types of properties you cannot buy with a VA loan. Anything that deviates from the typical residential housing options mentioned above is likely outside the bounds of VA financing.

Here are some of the property types you cannot buy with a VA loan:

1. Vacation Homes and Investment Properties

As mentioned above, the VA loan program’s primary purpose is to help eligible military members and veterans purchase a home to serve as their primary residence.

As a result, secondary homes that purely serve as vacation or investment properties typically don’t qualify for VA financing.

The Department of Veterans Affairs issues a publication called VA Pamphlet 26-7. It serves as the official handbook for mortgage lenders that participate in this loan program.

According to that handbook, federal law allows the Department of Veterans Affairs to guarantee loans used to “purchase or construct a residence, including a condominium unit to be owned and occupied by the veteran as a home.”

Elsewhere the handbook states:

“Use of the property as a seasonal vacation home does not satisfy the occupancy requirement [for a VA loan].”

In other words, you can only use a VA loan to buy a property you intend to live in as your primary residence. Vacation homes need not apply.

2. Undeveloped Land

You can use a VA loan to build a home on land that you own, or to buy land that you plan to build on immediately. But you cannot use the program to purchase vacant land by itself.

Here’s another way to think of it:

If you’re buying undeveloped land solely as an investment, perhaps to sell it again in the future, the VA loan program is not the right financing method. But if you want to purchase land to immediately construct a home that will serve as your primary residence, you could probably do it with a VA loan.

3. Non-Residential / Commercial Properties

The VA home loan program is designed to help veterans and military members purchase a property for residential use. Businesses, storefronts and other commercial structures are generally not eligible for a VA loan—even if they have a small living space attached.

As it states in the official handbook: “A property that is primarily non-residential is ineligible for VA loan guaranty.”

On the other hand, if a property primarily serves as a residence but has an office area designed for business purposes, it might qualify for a VA loan. But if most of the property is commercial and only a small area serves as a residence, it won’t meet the VA’s requirement.

4. Properties in Serious Disrepair (Fixer-Uppers)

When you buy a home with a VA-guaranteed mortgage loan, it will have to be appraised prior to closing. The appraiser will determine the home’s current market value and also check to see if it meets the VA’s Minimum Property Requirements (MPRs).

The MPRs help to ensure that the home is safe, structurally sound, and sanitary for occupancy. In short, the property must be move-in ready, without an immediate need for extensive repairs or renovations.

Because of this requirement, “fixer-upper” properties that need a lot of work just to be livable are typically not eligible for VA loan financing.

5. Cooperatives (Co-ops)

A housing cooperative, or co-op, is a democratically controlled corporation established to provide housing for its members. Each household owns a share in the corporation. As such, this type of property cannot be financed with a VA loan.

Co-ops differ from traditional homeownership as they are technically shares in a corporation that owns the building. So it’s not the same as buying a house that you will eventually own for yourself. VA loans are not compatible with this structure.

6. Properties Outside the U.S. and Its Territories

VA loans are intended for properties located within the United States and its territories (Puerto Rico, Guam, the Virgin Islands, American Samoa, and the Northern Mariana Islands).

Conclusion: The VA loan program offers a wide range of benefits, including the ability to buy a home with no down payment. But you can only buy certain types of properties when using a VA-backed mortgage. Generally, this program is limited to detached homes, condos, townhomes, and certain types of multifamily properties.

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