Whether buying as a first time home buyer or purchasing the 5th home, it is a big financial decision. Yet, lives are not always cut and dry. For instance, moving into a new home using a VA home loan. VA is a purchase money loan used for buying a primary residence, but, what if life gets in the way of purchasing a home and a lender approving it as a primary residence? Some VA buyers, in a bad way, learn about the VA loan occupancy requirement. The VA lender may say something like, “Your employment is further than a reasonable commuting distance from the new home.” Common primary residence roadblocks that buyers run into where one of the buyers will not occupy the home include:
- Service member stationed overseas
- Waiting for a PCS to another duty station
- Staying in prior home until sold
- Working in another state
- Borrower required to live within a certain distance from job
- Position not available yet near the new home
VA Loan Occupancy Requirement
Like other government mortgage loans, a VA loan is only offered for buyers of a primary or principal residence. It CANNOT be used for a vacation home or rental property. At closing, VA requires the Veteran to certify he/she will personally live in the property or move into the property within a reasonable time. A “reasonable time” means moving in within 60 days of closing. However, there are exceptions.
Exceptions for Occupancy More Than 60 Days
The Veterans Administration states “more than 60 days may be considered reasonable if both of the following conditions are met:
- The Veteran certifies that he or she will personally occupy the property as his or her home at a specific date after loan closing, and
- There is a particular future event that will make it possible for the Veteran to personally occupy the property as his or her home on a specific future date.”
VA further states, “Occupancy at a date beyond 12 months after loan closing generally cannot be considered reasonable by VA.” The key word here is “generally,” because there are other exceptions where we have been successful in closing a VA loan for Veterans with outside the box scenarios. Most commonly, the issue is the Veteran or other borrower working outside the “reasonable commuting distance” from the property.
Reasonable Commuting Distance
Underwriters for all primary residence loans look for each borrower’s employment to be within a reasonable commuting distance to the home. In other words, verifying that a buyer is not relly buying an investment property and saying it is primary. That would be mortgage fraud and believe it or not, it happens a decent amount of times throughout the country.
For the most part, lenders consider a one hour commute to work being a reasonable commuting distance. Although, not every situation is the same. We have closed a Veteran’s loan that had over a one-year history of driving almost 2 hours to work. When the Veteran wanted to purchase a home in a different direction within about 1.5 hours from work, it made sense. The loan closed as a primary residence.
Exceptions to VA Reasonable Commuting Distance
As mentioned above, life happens. Sometimes the right job and the right home aren’t in the same areas. VA loans, as well as others, may have the solution for cases where a borrower’s employment is far from home. Let’s explain some popular scenarios plus some solutions.
Service Member Overseas
Many service members are stationed overseas for some amount of time. Of course, overseas is well past a reasonable job commute. In these cases, VA allows the occupancy requirement to be satisfied by the spouse or dependent child occupying the home. If the occupancy is met by the dependent child, the Veteran’s attorney-in-fact or legal guardian must certify and sign VA form 26-1820 – Report and Certification of Loan Disbursement. Typically, the spouse signs loan documentation for the Veteran stationed overseas. In this case, a power of attorney is prepared and executed so that the spouse may sign for the service member.
Veteran Working in Another State
Sometimes there are situations where the goal is to move the family. It may even be a long way from the current residence. What if the Veteran needs to stay on the current job and the rest of the family will move into the new home? Even worse, what if the Veteran’s income is needed to qualify? We have received calls from Veterans who have been denied a VA loan for this situation.
Each situation seems to be different from the next, but often there could be a VA solution. First, a spouse must occupy the home as a primary residence within the 60 days.
Additional Expenses in Debt Ratio
If the Veteran is going to live a long distance from the new home, additional costs must be factored into qualification. Examples include:
- Cost of maintaining separate living arrangements
- Mortgage or rent payment
- Taxes and insurance on home (if applicable)
- If living rent-free, would need proof
- Travel cost to new home
So, in addition to the new house payment and current debt payments, any of the above must be figured into the debt to income ratios. To figure the travel cost, the Veteran must state in writing how often he/she will travel to the new home as well as by what mode of transportation. An example may be traveling by plane once per month or traveling by car twice per month. Either way, VA requires we calculate this expense.
Each time there is a case like this, we will consult our VA Regional Loan Center with the whole story. In the end, the VA underwriter and VA must approve the scenario.
Example of Buying a Home Where Veteran Works in Another State
Here is another scenario which other lenders were not able to approve, but we were able to close.
- Both Veteran and spouse live and work in Georgia
- The current house is in a resort area and would be retained
- They want to purchase a home in NC near their close family using a VA loan
- Spouse will occupy the new home full time
- Veteran will continue to work in GA as a pharmacist until a new job could be obtained near the new home
- Veteran will stay in the current home
- Non borrowing spouse has accepted a job near the new home and will start shortly after closing
We were able to document the above scenario with good explanation letters. Additionally, we proved the spouse’s new job in the vicinity of the new home as well as made sure the file meets VA guidelines. In the end, the Veteran and spouse were able to buy their home while the Veteran continued to work in GA. Although, the Veteran’s goal is to have a new pharmacy job in NC soon.
Non-Occupant Co-Borrower FHA, Fannie Mae, or Freddie Mac Options
Sometimes, the VA loan occupancy requirement just can’t be met, or the borrower(s) have too high of a debt to income ratio. Luckily, other loan alternatives allow a co-borrower that does not live in the home to co-sign. These loans include FHA, Fannie Mae, and Freddie Mac loans. Borrowers, who sign with another to qualify, is called a co-borrower. Furthermore, one that will not live in the primary residence is called a non-occupant co-borrower. A co-borrower could often be a spouse, family member, or another person with a proven relationship. Plus, the non-occupant co-borrower may even be the only one with income! That’s right! The occupying borrower may have zero income with a co-borrower that has sufficient qualifying income.
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These scenarios may get difficult. We want to hear the stories as well as find a solution. We promise you the service you deserve!