VA loans provide strong advantages to eligible veterans, active-duty personnel and select members of the National Guard and Reserves. A frequent question about VA home loans is whether or not a prospective borrower can apply for an FHA mortgage to purchase a rental property. The response is not a straight yes, but it’s feasible under certain circumstances. If you’re considering buying real estate as an investment and counting on rental income, this guide will teach what you need to know about using a VA loan for a rental property.
Understanding the VA Loan Program
A VA loan is a mortgage loan available through a program established by the United States Department of Veterans Affairs. These loans offer several benefits:
- No down payment required (in most cases)
- No private mortgage insurance (PMI)
- Competitive interest rates
- Easier qualification standards
But VA loans do carry some unique restrictions, especially when it comes to how the home is used. And that’s where rental property factors into the equation.
VA Loan Occupancy Rules
First and foremost among the rules to grasp is occupant eligibility. The VA loan is meant to assist veterans in buying and living in their primary home. Under VA guidelines, you’re required to affirm that you’ll use the house as a primary residence, usually within 60 days upon purchase.
So how does this affect rental opportunities?
You can’t use a VA loan to buy strictly for rental purposes. But there are ways both legal and strategic to use your VA loan that might enable some rental income or future rental use.
Scenarios Where You Can Use a VA Loan for a Rental Property
1. Multi-Family Properties (Up to 4 Units)
VA loans can be used for multi-family homes (for up to four units), as long as you occupy one of the units as your primary home. This is a popular and savvy move for veterans who desire to occupy one unit while renting out the rest to help pay the mortgage.
This is basically a form of “house hacking,” and one of the best ways to get going building a rental property portfolio with your VA benefit.
2. Live-In, Then Rent Out Later
The VA has no occupancy requirement, other than the home must be your primary residence at the time you purchase it. After a couple years (usually 12 months) of living on a property, you are typically allowed to move out and convert it into a rental without giving up your VA loan benefit.
This approach is beneficial for veterans that:
- Get deployed
- Relocate for work
- Upgrade to a new home
You can rent out your first property and use the rental income to cover the mortgage of a second property with another VA loan, if you have enough remaining entitlement.
3. Renting Out Rooms
Yes, if you are purchasing a single-family home using a VA loan, you can rent it out or even live there yourself without affecting your VA eligibility, even if it is only one room that you are renting. This can supplement your income and lower your out-of-pocket costs.
However, keep in mind:
- The property must remain your primary residence
- You should not lease the entire property while living elsewhere
Important Property Standards to Remember
If you are buying a home with rental income, it still has to meet the VA’s Minimum Property Requirements (MPRs). These are the standards with which the property must comply to be deemed safe, hygienic and structurally sound.
Examples include:
- Working plumbing and electrical systems
- No safety hazards like exposed wiring
- Adequate roofing and drainage
Whether you intend to live in the home or rent out a portion of it, it must pass a VA appraisal that simply applies these standards.
Using a VA Loan to Build a Rental-Ready Home
Another option is a VA Construction Loan, however the new house must have rental units as well (one for you to live in as your primary).
This path relinquishes more control regarding the look and features of the property. For instance, you might design a duplex or triplex with rental efficiency in mind.
How to Get Started
Financing a rental property with a VA loan is a little more complicated than a traditional home purchase, but there are some terrific benefits to be had if you can do it. Here are some important actions you can take:
1. Review Your VA Loan Entitlement
You can, in some cases, use little more than once, and you can even have more than one VA loan if your entitlement is high enough.
2. Partner with a VA-Savvy Realtor
An experienced real estate agent who is familiar with VA loans can help you find properties that qualify and provide rental potential.
3. Get Pre-Approved
Know what you can afford, what kind of property you’re eligible to buy, and whether you can add projected rental income to your application.
4. Talk to a VA-Approved Lender
Not all lenders are accustomed to the more complex VA deals such as multi-family or construction loans, so be certain to select a professional with experience.
Final Thoughts
VA loans are designed for primary residences, but if you want to use your VA loan to invest in rental properties, there are avenues for doing so that can meet or even exceed VA guidelines. Whether it’s multi-family properties or transitioning a home after living in it, if you play by the rules, your VA benefits can be a great tool for real estate investing.
Whether you are purchasing, building, or preparing to move, the trick is to work with VA-savvy pros and be aware of the rules of eligibility. If you plan it right, your VA loan can open the door to not just home ownership, but long-term rental revenue as well.