A reader asks, “I’m trying to purchase a three-unit and live in one. I don’t have any property management experience can I still qualify for a va loan for this property? Does it only apply if a buyer intends to use the rental income to qualify?”
VA loans for multi-unit property don’t require landlord experience simply to purchase the home. VA loan rules in Chapter Four of the VA Lender’s Handbook say a borrower must have property management experience if projected rental income from a multi-unit property is used to qualify for the VA loan. Additionally, there is a requirement for cash reserves. VA loan rules require the borrower to provide:
• cash reserves totaling at least 6 months mortgage payments (principal, interest, taxes, and insurance) and
• documentation of the applicant’s prior experience managing rental units or other background involving both property maintenance and rental.”
When the above applies, how much rental income may be included for purposes of calculating the borrower’s debt-to-income ratio? According to the VA Lender’s Handbook, “The amount of rental income to include in effective income is based on 75 percent of:
• verified prior rent collected on the units (existing property), or
• the appraiser’s opinion of the property’s fair monthly rental (proposed construction).”
The rules also say the lender may consider an amount greater than 75 percent “if the basis for such percentage is adequately documented.” The bottom line? A borrower does not need landlord experience just to purchase as long as he or she is able to qualify for the loan without including projected rental income.
Do you have questions about the VA loan process? Ask us in the comments section.
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