Are you considering using your VA home loan benefit to purchase a mixed-use property?
This unique investment can offer an exciting opportunity to create wealth through real estate investing. However, it is essential to understand how VA home loans work with mixed-use properties.
A mixed-use property is a multi-unit property with both a commercial and a residential space.
The VA allows you to purchase a mixed-use property, but there are some requirements that you must follow.
The VA Handbook discusses mixed-use properties in Chapter 12, Section 11.
The Handbook states the building must be “primarily residential.”
No percentage is given as to what “primarily residential” means.
Some lenders have interpreted that the property could be up to 49% commercial.
The Handbook also states that the nonresidential use does not impair the residential character of the property.
The property will also need to be zoned correctly.
Lenders will also ask what type of business will be in the property to ensure it is safe.
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Chapter 4 and Chapter 7 of the VA Handbook clearly say you can buy up to four residential units and one business unit in a single property.
Additionally, if the loan is a joint loan with split entitlement, a second business unit is allowed, enabling the property to have up to four residences and two businesses on site.
The guidelines listed above are VA minimum standards. Lenders may add requirements over and above the VA minimums.
For example, many lenders say the commercial percentage can only be 25% of the property’s square footage.
The 25% overlay is so common that many bloggers incorrectly say it is a VA rule, not a lender one.
Another typical overlay is that some lenders say the commercial space is one of the four allowable units.
This is also a lender rule and not a VA rule.
One of the great benefits of working with a mortgage broker like me is that I can review the different VA lender overlays and send your file to whichever lender best suits your situation.
Take the 30 second mortgage quiz to see if you qualify
If the lender allows it and you meet specific requirements, rental income could be used for qualifying purposes.
The maximum commercial percentage on VA mixed-use is 49% of the property’s square footage. This is addressed in the VA Handbook, Chapter 12, Section 11.
Not necessarily. You can own the business in the commercial space or rent the commercial space to someone else.
VA guidelines will allow lenders to make VA renovation loans on a mixed-use property. Unfortunately, I don’t know of any lenders currently allowing this.
The VA home loan is only for owner-occupied properties. Yes, you will need to live in at least one unit.
The VA Handbook clearly states that mixed-use multi-family properties are allowed. Chapter 4 and Chapter 7 address this.
The VA Handbook says that in most cases, one commercial unit is allowed in addition to the four residential units.
Chapter 7 of the VA Handbook also states that in the case of a joint VA loan with two veterans splitting entitlement, you are allowed to use two commercial spaces in addition to the four residential units.
As you can see, buying a mixed-use property is a great way to utilize your VA mortgage benefits and get some additional income.
As a full-service mortgage broker, I have access to several VA-approved lenders open to approving a mortgage on a mixed-use property.
If you’re ready to explore your options and unlock the potential of using a VA home loan with a mixed-use property, please reach out at 937-572-3713 or cscarpero@edgehomefinance.com.
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