If you’re an active duty or veteran service member looking for an affordable path to homeownership, you may have considered purchasing a leasehold property. Leasehold properties tend to be less expensive than traditional properties and usually require less upkeep. But is it possible to use a veteran home loan for a leasehold property? Here’s what you need to know.
What Are Leasehold Properties?
Leasehold properties are a type of real estate where you have the right to use and occupy a property, but you don’t own the land it sits on. Instead, the land is leased from the landowner for a long period, often decades. While you own the building or house, the land it’s on is rented under a lease agreement. This lease specifies how long you can use the property and often includes conditions for use and maintenance. At the end of the lease term, the property rights usually revert back to the landowner.
Can I Purchase a Leasehold Property with My VA Benefits?
Now, back to our original question. Yes, you can use a VA home loan to purchase a leasehold property, but there are specific requirements that must be met. The Department of Veterans Affairs allows veterans to use their VA loan benefits for leasehold estates, provided the leasehold meets VA regulations. Here are some key points to consider:
- Lease Duration: The lease must generally have a remaining term that is at least 14 years longer than the mortgage term. This requirement ensures that the leasehold interest remains valuable and secure throughout the loan.
- VA Approval: The lease terms must be reviewed and approved by the VA. This is to ensure that the lease is fair and does not contain any provisions that could adversely affect the veteran or the lender.
- Minimum Property Requirements: The leasehold must still meet the VA’s minimum property requirements, which are in place to ensure that the property is safe, sanitary, and structurally sound.
- Lender Considerations: Some lenders may have additional restrictions or may not offer loans for leasehold properties. It’s important to discuss this with your lender to understand their specific policies and requirements.
- Location-Specific Rules: In some areas, particularly where leasehold properties are more common (like Hawaii), the VA may have specific guidelines and processes in place.
- Resale Potential: Be aware that leasehold properties might have different resale considerations compared to freehold properties, which could affect future property value and marketability.
- Legal and Financial Advice: It’s advisable to seek professional legal and financial advice who’s experienced in dealing with leasehold purchases. Leasehold arrangements can be complex and might have long-term financial implications that borrowers should be aware of.
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