Explaining the Occupancy Requirement on VA Loans
VA loans are used to finance an owner-occupied home (click here to learn more) and are not available to finance investment property, a vacation or second home. The application is very specific as it states, “Do you intend to occupy this property as your primary residence?” and there is really no other choice. If you check the box that says the application is for an investment property it all stops right there.
But there are times when it’s okay not to occupy the property and here are a few legitimate scenarios.
At the Closing
When you sign closing papers to finance a home, you might wonder when you can move in. The fact is you can move in the very same day your closing papers are signed and your loan is funded. The home now belongs to you. There are times however when the sellers need a bit of time to get moved out if they’ve yet to do so. After all, they’re probably closing on another home as well or otherwise have another residence lined up.
It’s not uncommon for the sellers of a home who can’t move out right away to pay the new buyers a month’s rent while they’re making arrangements to move elsewhere. If that’s the case, your lender will want to see a copy of the lease agreement between you and them but the lease can’t last very long. VA loans require that you occupy the property within 60 days of closing. Anything beyond that it’s considered a rental property and the new VA loan could be called in and foreclosed upon.
VA lenders understand that active duty personnel sometimes don’t stay put for very long. Whether it’s a PCS or a deployment, it’s perfectly okay not to occupy immediately or even within a 60-day window. After all, that’s your job, right? If you’re not at the closing and can’t make the 60-day window your spouse using a real estate specific power of attorney can both sign for you and fulfill the occupancy requirement.
If you’re working overseas and can’t quite make it to the closing table because you’re on the other side of the globe your spouse, again with a power of attorney, can sign and occupy the property and meet the requirement.
If you’re not married and don’t have someone to fulfill the occupancy requirement because you either work overseas or otherwise travel extensively due to your job, this will take a bit more explaining. For instance, if you’re buying a home and only living in it six months out of the year, where will you be living the other six months? A lender might make the case that the property you’re buying is a second home and not a primary residence. And while gone, will you be renting the property? Some lenders limit how long a home may be rented out for on a regular basis. Will the home be vacant while you’re away or will it be leased to someone else? It’s easier to convince a lender the property in the States is your primary residence and not the one you’re renting in say, Rome or somewhere. However, if you wish to have two residences here in the U.S., you have to decide which address you’ll keep.
What happens when you move into the property then later on decide to buy yet another home, keeping the existing property as a rental? VA lenders understand this happens and it’s not uncommon for a veteran to buy another property and keep the rental income. Most often the rental income more than covers any existing mortgage and can make a lot of sense.
Yet moving out doesn’t mean the loan is now considered an investment property. VA lenders approve loan applications based upon the intent of the borrower at the time of application and not what might happen in the future. If you buy and immediately rent it out, then there might be a problem.
The VA establishes requirements that lenders must follow but there are also general guidelines that are left up to the interpretation of the lender. In addition, individual VA lenders may also have their own requirements in addition to what the VA issues. If you have questions about occupancy, talk to your VA lender.