Update: Our policy guidelines recently changed regarding properties with income-producing attributes. Generally, Veterans United will now loan on properties with income-producing attributes as long as the appraisal doesn't indicate the "highest and best" use of the property is commercial/business in nature. There can't be any marketability concerns with the property, either. Talk with a Veterans United loan officer at 855-870-8845 about a specific property if you have questions.
You can see our older post on this topic below.
Homeownership is at the heart of the American Dream. But entrepreneurship, the idea of owning your own business, is often in the conversation as well. Finding a way to combine the two is the ultimate for some veterans and active service members.
It's finding a way to do it using the VA home loan program that poses significant hurdles.
Properties that provide borrowers the ability to produce income can pose a big-time concern for many VA lenders. Any property with attributes that could be considered "income producing" may not fly with a VA mortgage. This can be a nebulous phrase that applies to a property with cultivated farm land or a parcel that contains an outbuilding with a shop inside.
But what if you simply fall in love with a home that's likely considered an income-producing property? It doesn't matter whether you're a budding entrepreneur or just someone looking for their dream home. The bottom line is you may have a tough time using the VA loan to buy a home with the infrastructure or abilities to make you money.
Pinning down a simple definition of an "income-producing property" isn't exactly simple. The examples mentioned above are just two of many. It's almost more of a "Lenders know it when they see it" type of situation. A real estate agent who knows the VA program can be a big help when it comes to spotting potential issues before you get too far down the purchasing road.
Properties with outbuildings that had a commercial use can be problematic. Same goes for trying to purchase a house on a working farm. Or a house with a beauty salon in the garage. Or a property where the seller rents out his or her horse barn.
Your intentions for the property may not matter. Even if you have no desire to take over a beauty salon or keep renting out a barn, these income-producing attributes can still hamper the loan process.
The big, burning question is always, "Why?" The answer can vary depending on the lender and the investors that purchase their loans. In general, there's concern about financial liabilities when there's a business enmeshed with your home. Problems with your business could lead to the government or other entities placing liens on the property.
That's not something another lien holder -- that is, the lender or whoever ultimately holds the loan -- wants to contend with. So rather than deal with that possible headache some avoid all properties with income-producing attributes.
That can seem mighty unfair to a borrower who falls in love with one of those properties and has no intention of using it to produce income. But it might not always be a dead end.
These situations are so individualized that it's difficult to get beyond generalities. Even seemingly minor aspects of the income-producing attributes can play a critical role for lenders. Zoning designations really don't have much of an impact.
Is it possible to make one of these purchases work? Generally, yes, it's possible, although there are no guarantees. You may be able to move forward on a purchase if the seller is willing to remove any income-producing infrastructure. The rub is that we could be talking about removing an entire horse barn or an outbuilding, which might not sit well with the seller.
For prospective VA homebuyers, the concept of income-producing attributes is something to consider before you set out on the home search. If you're enamored with a property that might fall into this category, talk with your VA mortgage specialist as soon as possible. They'll let you know whether it's likely to be viable. The last thing you want is to waste money on an appraisal and a home inspection on a property that won't ultimately make the cut.
Talk with a Veterans United loan specialist about starting the homebuying process at 855-870-8845. You can look to connect with a military-friendly real estate agent through Veterans United Realty.