Can I Buy a Multi-Family Property With a VA Loan?

All across the U.S., homeownership is expensive right now. Still, it offers a strong tool to improve your financial standing. If you can get into a house, your monthly payment builds equity. If you rent, that money goes straight to your landlord’s pocket.

Buying a multi-family property can give you an opportunity to become a property owner while generating extra income to cover that mortgage bill. And you can explore this option even if you want to use a mortgage backed by the Department of Veterans Affairs (VA). 

So yes, you can buy a multi-family property with a VA loan. But there are some caveats. 

Up to a fourplex: What the VA allows

The VA is willing to back loans for multi-unit properties, but only up to a point. Specifically, with a VA loan, the Department lets qualifying veterans and active-duty servicemembers buy up to a four-unit property. 

So if you were planning to buy a massive apartment building and get uber-rich renting out all of those units, you’re out of luck. But if you were picturing something in the range of duplex to a fourplex, you’re in business. 

Occupancy rules with VA loans

There’s another caveat here: you can use a VA loan to buy a muti-family property only if you plan to live on the property. If you’re buying a duplex with your VA loan, for example, you need to live in one unit, leaving you only one to rent out. 

And before you think you can skirt this issue by living in some cramped corner on the property, think again. The VA has minimum property requirements (MPRs). You need to have enough room to live, cook, and sleep, you need proper plumbing and electrical, and even a decent roof. There VA isn’t about to let you rent out both units of the duplex and try to live in the broom closet. 

Being able to afford your multi-family property VA loan

If you want to buy a multi-family property between a duplex and fourplex, you plan to live in one unit, and the property meets the VA’s MPRs, you still have one big piece to place in the puzzle: affordability. 

Both the VA and the lender you use will want to see that you can pay back what you borrow. And because a multi-family property usually costs more than a single-family home or condo, that’s an important consideration here. 

Using rental income to qualify for the loan

Fortunately, the VA allows lenders to consider part of the potential rental income here. That means that if you can reasonably expect to be able to rent out the other units for a certain amount of money, you can probably count some of that toward your own income. And that makes it more likely you can repay what you borrow, which heightens your odds of getting approved for the VA loan.

Usually, you can safely assume 75% of the rent can count toward your income. Let’s say you’re buying a threeplex, and the previous owner had been renting the units for $1,500. Your lender and the VA can reasonably expect that you’ll get about $3,000 a month in rental income (the two units you won’t live in multiplied by $1,500).

That doesn’t mean every single dollar of that $3,000 counts toward your income, though. You might have a renter move out and then spend a couple months trying to find a replacement. Or you might have to do repairs in a unit, eating into your profit. 

Because renting is a bit unpredictable, you can usually count around 75% of the anticipated monthly rent toward your income. So in our example, the VA and your lender would likely let you add $2,250 (75% of $3,000) to your income. 

Cash reserve requirements

If you’re going to be relying on rental income to qualify for your VA loan, the VA and your lender typically want to see a cushion. You’ll usually need to show that you have enough cash to cover six months of your mortgage payments (including interest), plus taxes and insurance on the property. 

No landlord experience? You’ll probably need to pay for property management

To use rental income to qualify, your lender and the VA also want to be reasonably sure you’ll be able to manage landlord responsibilities. You’ll typically either need to show you have past experience in this area, or you’ll need to hire a property management company. 

Costs at closing

Finally, you need to be ready to handle all the costs that come with finalizing your VA loan. That means paying closing costs, many of which are a percentage of your loan amount. And that means the bigger your loan, the more money you’ll likely need to hand over at closing.

Plus, you should consider the VA funding fee. Because it’s also a percentage of your loan amount, buying a multi-family property means a bigger fee. You can roll that into your loan instead of paying it upfront, but that means paying interest on it. 

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Clearly, there’s a lot to think about here. But with a 0% down payment and rental income to help you manage the mortgage, a VA loan could be the optimal way to buy your multi-family property. 

For more information about all of this, you can spend some time reading through the VA’s official pamphlet. Go to “Topic 2. Income – Required Documentation and Analysis” and scroll down to “n. Rental Income.”

Or you can talk to an expert who already understands all of this. To work with an experienced VA lender, compare your options and reach out to connect to a loan officer.

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