VA loans offer the unique opportunity to secure 100% financing. Does it get any better? You also get flexible underwriting guidelines with this program. It’s a great way to thank the veterans of our country. Along with the flexibilities, though, come some restrictions. Among them are property restrictions. You might run into a few more stumbling blocks than you would with a non-government loan. Luckily, the restrictions aren’t too hard to work around, though.
Single Family Homes
The most common type of home is the single family home. You shouldn’t have any difficulty with VA funding with this type of home. A freestanding home often qualifies as a single family home. But, any unit that houses one family and has direct street access often qualifies under this category. If you plan to purchase a condo or townhouse, though, read on.
Townhouses and Condos
Townhouses and condos are technically single family homes. Each unit houses one family. With direct access into the individual unit, it qualifies. But, there is a distinction with this type of home. You don’t own the land the home stands on. The combination of you and the other owners in the development own it. Because of this, the entire development must be approved by the VA. If it doesn’t have approval, you can’t secure VA financing.
If you come across a development without VA approval, you may request it. This process takes time, though. It’s best to ask right away about VA approval before proceeding. If the association must obtain approval, it could take a few weeks to a month. The association must provide the VA with important documents. These documents pertain to the organizational structure, finances, and policies of the association.
Modular homes are increasing in popularity because of their affordability. VA loans do allow this type of home. But, it must be permanently affixed to the site. In addition, the builders must use HUD guidelines when building the home. Because the home is prebuilt in the factory, there is more risk for issues with HUD guidelines. Not every VA lender will approve a modular home, but there are definitely many that allow it.
The VA does allow financing on mobile homes. The problem is finding a lender willing to do so. Mobile homes often depreciate rather than appreciate. They also pose a high risk of default. Because of this, many lenders don’t accept them. Just like modular homes, a mobile home must be permanently affixed to the site. In other words, you shouldn’t be able to pick it up and move it. There are also size requirements:
- Single wide mobile homes must be at least 400 square feet
- Double wide mobile homes must be at least 700 square feet
Any mobile home must have proper sleeping quarters. They must also have a kitchen and working bathroom in order to be eligible.
Types of Properties Not Eligible for VA Financing
Of course, there are types of properties that are not eligible at all for VA financing. This means even if a lender is willing to lend on it, they can’t use the VA program. These include:
- Vacant land – The VA loan was created to help veterans secure a safe and sanitary home. Vacant land often doesn’t turn into land with a home. The VA will not offer financing for this transaction.
- Co-ops – Cooperative Housing Projects are also ineligible. With this transaction, you don’t buy a home. You buy shares in a corporation. These shares give you access to a unit in the co-op. this is not a VA covered property.
There is one more property type that is on the fence – new construction. The VA doesn’t readily offer financing for this transaction. The VA may approve it, but finding a lender may be difficult. This is because of the complexity of the project. There are many inspections and regulations to follow. There’s more than a house to approve. There’s the builder, the land, and the plans. This means a lot of work on the part of the lender.
One way around financing new construction is to secure the temporary financing with a conventional lender. When you are ready for the permanent financing, meaning the house is built, refinance into a VA loan.
There are many types of properties eligible for VA loans. You aren’t’ stuck with a single-family home, but they do get approved the easiest. Any home you purchase must be clean, safe, and ready to move into. The VA doesn’t fund rehab homes or investment homes. You must live in the property and it must be an eligible property according to the VA.