VA Loan for Mixed-Use Property

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VA Loan for Mixed-Use Property

Jen Sprague
Chicago, IL · Member since 2019 · 3 posts · 1 vote

Hello there!

My boyfriend is currently in a bit of a quagmire, and I’m hoping we can get some excellent advice here.

He has found a property that he absolutely wants to purchase. This is a mixed-use building with 3 residential units and 1 commercial unit. According to our understanding of the VA home loan guidelines, a property can be up to 4 units, and mix use is allowed so long as the property will be the buyer's primary residence and the the commercial use is subordinate to the residential use comprising no more than 25% of the property space.

My boyfriend has his certificate of eligibility for a VA home loan, and the building meets these requirements exactly. However, he has been turned by multiple lenders who are telling him that although the VA allows for circumstances such as these, most banks will not approve these kinds of loans.

That being said, "most" does not necessarily mean "all." He wants to fight for this property and secure it with the VA loan that he earned. Does anyone have any advice on finding a lender that would be willing to give him a VA loan for this property?

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
7y

Is it in contract? Most lenders will not spend a lot of time on 1 in 1000 longshots. Once it is in contract, it's no longer 1 in 1000. But most sellers and realtors also will not deal with 1 in 1000, meaning they will not accept your offer. Chicken and the egg.

A non-refundable earnest money deposit, or option purchase, might help you get it under contract.

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  • Jen Sprague
    OP
    Chicago, IL · Member since 2019 · 3 posts · 1 vote
    7y

    Sorry, I realize I forgot to add specifics.

    We are in Chicago.

    The building is $375,000.

    It was built in 1897, we believe it was originally a brewery.

    There are currently two paying tenants, one vacant unit, and the storefront is vacant.

    Just from the two occupied units, his mortgage would be covered. It’s not necessary for him to lease out the store front to afford the mortgage payments.

    I hope this covers it!

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y

    Is it in contract? Most lenders will not spend a lot of time on 1 in 1000 longshots. Once it is in contract, it's no longer 1 in 1000. But most sellers and realtors also will not deal with 1 in 1000, meaning they will not accept your offer. Chicken and the egg.

    A non-refundable earnest money deposit, or option purchase, might help you get it under contract.

    2Reply
  • Jen Sprague
    OP
    Chicago, IL · Member since 2019 · 3 posts · 1 vote
    7y

    @Chris Mason

    I’m sorry, could you explain a little by what you mean by “in contract?”

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Jen Sprague:

    @Chris Mason

    I’m sorry, could you explain a little by what you mean by “in contract?”

     Once the seller has indicated their written acceptance of your offer by signing the purchase contract, making it fully ratified, you are said to be "in contract."

    0Reply
  • Josh McLain
    Member since 2019 · 1 post · 0 votes
    7y

    My question is why this would be considered a 1 in 1000 long shot. 

    In her second post, Jen mentioned that simply keeping the two already occupied units would cover the mortgage. That's not including the unit that her boyfriend would be occupying (and any cash he might be contributing to the place on his end) or the store front. So, assuming the store front could remain empty for long periods of time without the mortgage being in jeopardy, where is the risk that would be keeping lenders away from it?

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Josh McLain:

    My question is why this would be considered a 1 in 1000 long shot. 

    In her second post, Jen mentioned that simply keeping the two already occupied units would cover the mortgage. That's not including the unit that her boyfriend would be occupying (and any cash he might be contributing to the place on his end) or the store front. So, assuming the store front could remain empty for long periods of time without the mortgage being in jeopardy, where is the risk that would be keeping lenders away from it?

    1) 900 out of 1000 commercial listing agents, and commercial real estate sellers, will throw it in the trash as soon as they see "0% down residential mortgage of the VA variety on commercial real estate" without even responding to your offer or giving your agent a courtesy call. That's your biggest hurdle.

    2) Of that remaining 100, on 95 of them the appraisal is going to find some reason to kill it. VA property standards will apply here, and commercial real estate tends to be more beat up than residential in general, and on top of that high vacancy real estate is also almost always beat up real estate that has been poorly managed and maintained for several years. It's also much less common in the commercial real estate world for sellers to fix things prior to close of escrow. 

    3) Of the remaining 5 out of 1000, 4 out of 1000 is a hyper conservative estimate for fallout from people getting fired while in escrow, taking out car loans, that sort of stuff.

    So, yeah, 1 in 1000. Get the offer accepted (seller needs to sign on the line which is dotted) and it will be a LOT easier to get lenders to entertain it. 

    1Reply
  • Zack KarpPro Member
    Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
    7y

    @Jen Sprague

    I'm in Chicago and may be able to help.  I will send you a PM.

    847-387-5513
    0Reply
  • Erin Ackman
    Member since 2021 · 1 post · 0 votes
    5y

    Good morning Jen, 

    Were you guys ever able to find a lender who could pull this off? I am in the same exact situation currently. Just in Utah. Let me know please I am getting a lot of running around. 

    0Reply
  • Johnny McKeonPro Member
    Rental Property Investor · Mesa, AZ · Member since 2016 · 101 posts · 72 votes
    4y
    Quote from @Erin Ackman:

    Good morning Jen, 

    Were you guys ever able to find a lender who could pull this off? I am in the same exact situation currently. Just in Utah. Let me know please I am getting a lot of running around. 


     Hey guys just wanted to follow up. on your Mixed use deals. Did you end up submitting your offers?

    0Reply
  • Carlos Scarpero
    Lender · Dayton, OH · Member since 2018 · 117 posts · 19 votes
    2y

    It can be done. VA actually allows up to 49% commercial.

    Keep in mind that a lot of lenders don't like mixed use VA and won't do them. Your best option is a good mortgage broker.

    0Reply
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