VA loans exist to make homeownership more affordable and accessible to service members, veterans and qualifying surviving spouses. Or, if you are eligible, you can use a VA loan to refinance your current mortgage.
Before applying, it’s worth understanding the lending guidelines to know what to expect when approved for a loan. More specifically, you want to familiarize yourself with the occupancy requirements to avoid being penalized or, worse, losing your benefits.
Introduction to VA Loan Occupancy Requirements
Before exploring the specifics of VA loan occupancy guidelines, here’s an overview of how these mortgages work.
What is a VA Loan?
A VA loan is a home loan backed by the U.S. Department of Veterans Affairs (VA). It’s accessible through VA-approved lenders and is reserved for active-duty service members, veterans, reserves, and qualifying spouses.
The primary draw of these mortgages is the ability to get approved with no down payment. They also generally come with lower interest rates than conventional loans.
Importance of Occupancy Requirements
Properties purchased or refinanced with VA loans must be used as primary residences for at least one year. There are also rules related to the timeframe between closing and the required occupancy date. But some circumstances warrant an exception. More on this shortly.
How Does the VA Determine Occupancy? Basic VA Loan Occupancy Rules
It’s worth understanding the occupancy requirements for VA loans to preserve your valuable benefits.
Initial Occupancy Requirement
At closing, you’ll certify that you intend to occupy the property you purchase as your primary residence. You’ll also have 60 days from the closing date to relocate to your new home.
However, you could qualify for an exception if you’re being deployed or if the home will undergo significant renovations. The lender will request detailed documentation before deciding.
Continuous Occupancy Requirement
There’s no strict timeline on how long you must occupy the home. However, the VA expects you to use it as a permanent residence. And if you vacate the premises for an extended period without notifying your lender, issues could arise.
Occupancy Requirement for Refinancing
The occupancy rules are slightly different for VA loan refinances, including streamlined and cash-out refinances. At closing, the lender will require you to certify that the property was or will be used as your primary residence for at least a year.
Exceptions to the VA Loan Occupancy Requirements
Below is a closer look at the exceptions to the VA loan occupancy rules.
Deployment and Active Duty Service Members
If you are currently deployed, the occupancy timeline is extended to 12 months following closing. So, if you return home within this period, you’ll be in compliance with the VA loan occupancy requirements.
Spouses Occupying the Home
If you are deployed, your spouse can occupy the home to meet the VA loan occupancy requirement. Keep in mind that this exception does not apply to non-spouse relatives.
Delayed Occupancy Due to Property Repairs or Construction
Borrowers who purchase inhabitable homes that require significant construction or repairs to make them livable could also qualify for an exception. The lender will require a reasonable time frame for when the property will be ready for occupancy, along with supporting documentation.
Documenting Occupancy
Here’s what you need to know about the documentation requirements relating to occupying a home purchased or refinanced with a VA loan.
Statement of Occupancy
You’ll complete Form 26-1820 to certify your intention to occupy the property as your primary residence. Again, your spouse can fulfill this requirement if you cannot do so.
Commonly Accepted Proofs of Occupancy
Any of these documents that display your name and the property address can be used to prove you occupy the property:
- Driver’s license
- School enrollment correspondence
- Utility bill (i.e., electricity or water bill)
- Voter registration card
Consequences of Failing to Meet Occupancy Requirements
Failing to comply with VA loan occupancy requirements can have serious consequences.
Legal Repercussions
Some lenders may conduct period checks or audits of properties. If they find that you haven’t occupied the property within the required timeframe or have leased it without proper authorization, the lender may report the violation to the VA.
In this case, the VA has a right to demand immediate repayment of the loan and impose penalties for not adhering to the rules. The federal government can also get involved and take legal action against you for loan fraud.
Impact on Future VA Loan Eligibility
You could also face challenges when attempting to secure VA loans in the future. Lenders may have reservations about your integrity and deny your application for funding. And in some instances, you can lose your VA loan benefits entirely.
Special Situations and Flexibility in Occupancy
If you plan to use your property for both commercial and residential purposes or rent out a portion of it, here are some important considerations.
Dual Use of Property (Home Business and Residential)
The VA permits you to use the property for both business and residential purposes, but it still must be your primary residence. Furthermore, the business should not occupy more than 25% of the home’s square footage.
Renting Out a Portion of the Home
Per VA guidelines, you can also rent out a portion of your home if you use it as your primary residence. But the portion of the home you rent should not exceed the space you occupy.
Strategies for Meeting VA Loan Occupancy Requirements
It’s relatively easy to meet the occupancy guidelines.
Planning for Relocation
Start planning your move in advance. If possible, do so before you receive the “clear to close” to ensure you have ample time to relocate.
Utilizing Power of Attorney for Spouse Occupancy
If you are an active-duty service member, your spouse can fulfill the occupancy requirements if you can’t move into your new home due to deployment or military assignments.
Using a power of attorney allows your spouse to sign documents on your behalf. Make sure the power of attorney document includes specific authorization for real estate transactions. Having your spouse occupy the home within the required period can keep you compliant with the VA loan rules.
Leveraging Military Benefits and Exemptions
Active-duty service members may qualify for certain exemptions to standard VA loan occupancy requirements. If you receive a deployment order or reassignment, inform the VA immediately.
In such cases, the VA may extend the occupancy period beyond the typical 60 days. You might also be eligible for other military benefits for relocation costs. Keep documentation of your military service and any special circumstances to support your case when applying for exemptions.
Other Tips for VA Borrowers
Keep these tips in mind when applying for a VA loan to help the process go more smoothly.
Communicate with Your Loan Officer
It’s vital to keep the line of communication open between you and your lender during the lending process. Doing so ensures everyone is in the loop, and you can avoid delays and surprises later on down the line.
Keep Detailed Records
Keep copies of all forms, emails and correspondence related to your loan application. Organize your records to access any document your lender needs quickly. Doing so can help streamline the lending process, and you’ll be prepared for any audits or checks by the VA or your lender.
Understand the Implications Before Making Unconventional Occupancy Decisions
You must meet the occupancy guidelines or qualify for an exception to avoid jeopardizing your benefits. In this case, it’s in your best interest to hold off on applying for a VA loan.
Conclusion: Recap of VA Loan Occupancy Requirements
VA loan occupancy requirements should not be overlooked. It’s worth understanding how they work before applying for a VA loan to avoid potentially costly consequences.
FAQs About VA Loan Occupancy Requirements
Yes, you can secure funding with a non-occupant. This tactic is often used to help strengthen the mortgage application for a VA loan.
You can rent it out after one year, but you must notify the lender.
